Although the tech sector has been a pocket of strength on the Australian share market this year, it is still down materially over the last 12 months.
This means there could be some huge bargains out there for patient investors.
Goldman Sachs agrees with this view and has picked out a number of ASX tech shares that it believes investors should be buying before it's too late.
The first two are Life360 Inc (ASX: 360) and Xero Limited (ASX: XRO), which it believes will benefit from a shift to profitable growth. This is due to the fact that "profitable tech continues to trade at a large premium to non-profitable."
Goldman has a buy rating and $7.85 price target on Life360's shares and a conviction buy rating and $116.00 price target on Xero's shares.
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What else is Goldman saying about ASX tech shares?
The broker also reiterates its bullish view on profitable ASX tech shares Data#3 Ltd (ASX: DTL), Macquarie Telecom Group Ltd (ASX: MAQ), and REA Group Ltd (ASX: REA).
It has price targets of $9.20, $73.30, and $158.00, respectively, on their shares.
Goldman summarises:
We believe investors will reward companies that demonstrate (1) resilient top-line momentum and/or pathways to revenue upgrades; (2) tight cost management or cost-out programs; and (3) reasonable valuations in light of the elevated rate environment. We refer to our updated Tech Resilience Screen as a framework to identify companies with strong balance sheets, high recurring revenue, defensive end markets, mission critical products and shorter time-to-value.
As such we reiterate our top picks and delineate our Buy calls into more "offensive" names that trade at low valuations and are moving to free cash flow profitability (Xero (on CL)/Life360) and "defensive" profitable names with resilient end-markets and visibility to consensus upgrades (REA (on CL), Data#3 and Macquarie Telecom).
