Why the TechnologyOne share price could be a top option for investors in June

TechnologyOne shares could be a top option in June…

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Key points

  • TechnologyOne shares ended May right back where they started it
  • This was despite the company reporting strong first-half annual recurring revenue growth
  • Goldman Sachs was impressed and sees plenty of upside for its shares

The TechnologyOne Ltd (ASX: TNE) share price had a reasonably volatile month.

The enterprise software company’s shares were down over 8% month to date at one stage before ultimately ending the period right back where they started it.

Where next for the TechnologyOne share price?

The TechnologyOne share price may have been flat in May but one leading broker is tipping it to climb higher in June.

According to a recent note out of Goldman Sachs, its analysts have put a buy rating and $13.30 price target on the company’s shares.

Based on the current TechnologyOne share price of $10.50, this implies potential upside of 27% for investors over the next 12 months.

What did the broker say?

Goldman has been looking over TechnologyOne’s recent half-year results and was pleased with what it saw. This was particularly the case with its annual recurring revenue (ARR) growth, which offset softer than expected margins.

Overall, it feels that this supports its view that the company is well-positioned to at least achieve its medium term ARR target. The broker also likes the company’s defensive qualities in a potentially challenging environment.

Goldman commented:

TNE reported a solid 1H22 result with a stronger-than-expected FY22 ARR outlook offset by softer margins. In our view, TNE is making meaningful strides on the path to A$500mn ARR driven by both an acceleration in the pace of SaaS transition as well as improving underlying fundamentals (net expansion and new business).

Execution on new business growth in the UK and cross-sell into the existing customer base (supported by lower friction to adoption on the SaaS platform) will be key determinants in TNE’s growth post-transition, which we believe will become increasingly evident in coming years.

With a potentially challenging macro backdrop on the horizon we see TNE as offering resilient earnings given its low churn, mission critical software and defensive public sector end markets.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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