I think these 2 ASX tech shares are buys in May

May 2022 seems like a good month to consider ASX tech shares.

| More on:
A young woman with glasses holds a pencil to her lips as she is surrounded by the reflection of data as though she is being photographed through a glass screen project with digital data.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • I believe that ASX tech shares could be good opportunities in May 2022
  • VanEck Video Gaming and Esports ETF owns a portfolio video gaming businesses
  • ELMO Software provides HR software to businesses in Australia and the UK

After such a tricky start to 2022 for ASX tech shares, I think there are plenty of potential opportunities. May 2022 could be a good month for hunting in the tech sector.

I like a number of businesses in the sector. ASX tech shares often have the capability to achieve attractive profit margins because of the intangible nature of what they provide. It's easier and cheaper to digitally send software to a new client than to make a new car or a table.

The concerns about inflation and interest rates have given the market jitters. But I think these lower prices now mean investors can buy some really good investments at much more attractive prices. So, here are two of my ASX tech share ideas as potential bargains.

VanEck Video Gaming and Esports ETF (ASX: ESPO)

This is an exchange-traded fund (ETF) that gives investors access to a group of global video gaming businesses.

Gaming readers may recognise some of the names in the portfolio including: Tencent, Nvidia, Activision Blizzard, Netease, Nintendo, Advanced Micro Devices, Electronic Arts, Nexon, Bandai Namco, and Ubisoft.

This ETF is invested in businesses that are seeing pleasing growth. VanEck said that video gaming revenue had risen by an average of 12% per annum since 2015. E-sports revenue grew by an average of 28% per annum since 2015.

VanEck points out that e-sports has created new potential revenue streams from game publisher fees, media rights, merchandise, ticket sales, and advertising. The competitive video gaming audience is expected to reach 646 million people worldwide in 2023, driven partly by an increasing number of people on the internet.

I think the ESPO ETF is attractive for its revenue growth and the fact that it has fallen by 20% since the start of the year.

ELMO Software Ltd (ASX: ELO)

ELMO provides human resources and payroll software for small and medium businesses in Australia and the UK.

The business is rapidly scaling as shown by its latest quarterly update for the three months to 31 March 2022. This showed revenue rising by 37% to $67.4 million. Annualised recurring revenue (ARR) rose 33% to $101.2 million.

While the ELMO Software share price has dropped by more than 30% in 2022 to date, I think it has demonstrated a couple of positives recently. The FY22 third quarter showed that the business had swung to profit at the earnings before interest, tax, depreciation and amortisation (EBITDA) level. EBITDA rose $3.2 million year on year to $2 million.

The company also confirmed that it's expecting to cross the cash flow breakeven point in the second half of FY23. It also said that its ARR is expected to rise to between $107 million to $113 million by the end of FY22, representing growth of between 28% to 35% year on year.

The company continues to grow its client base and it's adding more modules for clients to use. This makes customers more valuable to ELMO Software and makes the software more useful to clients.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Activision Blizzard, Advanced Micro Devices, and Elmo Software. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended Electronic Arts and NetEase. The Motley Fool Australia has positions in and has recommended Elmo Software. The Motley Fool Australia has recommended Activision Blizzard and VanEck Vectors ETF Trust - VanEck Vectors Video Gaming and eSports ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Technology Shares

A man sits thoughtfully on the couch with a laptop on his lap.
Technology Shares

This ASX tech stock rocketed 60% in March! Can it keep on delivering?

After soaring in March, the ASX tech stock is now up 169% since this time last year.

Read more »

Five happy friends on their phones.
Share Market News

Goldman Sachs says these ASX tech stocks can rise 18% to 30%

The broker sees big returns on offer from these shares.

Read more »

A guy helps a girl lift a couch, both are laughing.
Technology Shares

3 of the best ASX tech shares to buy and hold until 2030

I think these stocks have exciting futures.

Read more »

A young woman uses a laptop and calculator while working from home.
Technology Shares

If I'd put $5,000 in Block shares 5 months ago, here's what I'd have now

Was it a good idea to invest in this payments stock five months ago?

Read more »

Close up of a sad young woman reading about declining share price on her phone.
Technology Shares

Why is the Brainchip share price sinking over 7% today?

What's going on with this tech stock on Wednesday?

Read more »

woman working on tablet
Technology Shares

Missed out on Nvidia? My best ASX tech stock to buy and hold

Do you have FOMO after the US chip maker's share price rocketed? Here's an Aussie company worth backing instead.

Read more »

Three businesspeople leap high with the CBD in the background.
Technology Shares

Guess which ASX small-cap stock is rocketing 45% on 'pivotal moment'

Investors have responded very positively to an announcement.

Read more »

A man looking at his laptop and thinking.
Technology Shares

Why are these ASX tech shares getting smashed today?

Owners of these two stocks are missing out today.

Read more »