It has not been an easy time to be holding ASX shares in the technology sector.
The S&P/ASX All Technology Index (ASX: XTX) has plunged 40% since November. And with more interest rates rises to come, immediate prospects still look grim.
But for those with long-term investment horizons, they need to grin and bear it if the business is continuing to perform.
Forager Funds is finding itself in exactly this position, with Whispir Ltd (ASX: WSP), Nitro Software Ltd (ASX: NTO) and Bigtincan Holdings Ltd (ASX: BTH) in the portfolio.
All three have halved their valuations since the start of the year.
Yikes.
Business performance is not linked to the share price dive
Forager, in a memo to clients, indicated the operational updates have been positive.
"Trends in revenue growth for all three remain at least in line with expectations, ranging from 24% at Whispir (using the recurring component of its revenue only) to more than 40% at Nitro."
A blessing in disguise due the current market rout might be that these businesses have cleaned up their costs.
"Nitro reduced its estimate of current year losses and expects to be generating cash flow in the 2024 financial year.
"Bigtincan was already cash-generative in the March quarter and should improve from there."
With stock prices plummeting more than 50% this year, the market obviously doesn't believe these tech firms will make a profit soon enough.
But Forager sees no reason why its conviction should change.
"The current period losses are very modest in contrast with the long-term revenue annuities being built," read the memo.
"How valuable those annuities ultimately become is still to be proven, but as we get more evidence and if share prices continue falling, you should expect higher portfolio weightings."
Surging interest rates, Forager admitted, might further impact investors valuations of tech shares. But the operational impact on these three businesses is "minimal".
"Where the operating performance continues to justify our valuations, [we are] gradually increasing portfolio investments in the most heavily punished holdings."
The analyst community generally agrees with Forager.
According to CMC Markets, all seven analysts that cover Nitro rate it as a "buy". All four fund managers follow Whispir rate it as a "buy".
Bigtincan has just Canaccord Genuity covering it, but it has labelled it a "strong buy".
