Up 80% in 2023, why a 'rare combo' could help further propel this ASX tech stock

This ASX tech share could continue to rise according to one expert.

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Key points

  • Dropsuite is a software-as-a-service business that provides backup and cybersecurity services
  • One expert suggests that the ASX tech stock’s share price can continue to rise
  • Annual recurring revenue (ARR) continues to rise by digital digits

The Dropsuite Ltd (ASX: DSE) share price has gone up by 83% since the start of 2023, as we can see on the chart below. There is a belief among some investors that this ASX tech stock could continue to rocket higher.

For readers that don't know this business, the ASX share describes itself as a cloud software platform company that enables "businesses to easily backup, recover and protect their important business information."

What's so attractive about Dropsuite shares?

The software business is seeing strong financial growth.

A tech analyst at Shaw Partners, Jules Cooper, said that the Dropsuite share price could rise substantially in the next three years because of a combination of high revenue growth and profitability, according to reporting by the Australian Financial Review.

Cooper was quoted with comments about the ASX tech stock:

This is a business that is growing fast, has good retention and is profitable.

It's a great business that's [share price has] gone sideways for two years. Had it not been a market where people weren't investing in technology, this stock would have continued to go up year-over-year and now investors have an opportunity to buy something that they know can continue to grow.

What truly sets Dropsuite apart, is that it is achieving this impressive growth whilst being profitable and producing positive cash flow – this is a rare combo on the ASX for software stocks.  

How quickly is the ASX tech stock growing?

In the three months to 31 March 2023, it said that its operating cash flow was $0.28 million, the fourth consecutive quarter of cash flow generation, with FY23 also expected to be operating cash flow positive.

Annual recurring revenue (ARR) at the end of the quarter was $28.2 million, up 11% over the prior quarter and up 66% year over year.

The ASX tech stock's monthly average revenue per user (ARPU) was $2.31, up 2% quarter over quarter and up 18% year over year. It reached 1 million paid users during the quarter.

At the time of the update, the Dropsuite CEO Charif El Ansari said:

Dropsuite's market‐leading position as a Software‐as‐a‐Service backup provider along with a range of favourable industry tailwinds in the global data protection space helped to drive record revenue growth, a fourth consecutive quarter of positive cashflow and pleasingly we surpassed 1 million paid users for the first time. Further, due to our ongoing focus on reducing Cloud costs, Dropsuite was able to sustain its operating leverage and margins to produce profitable growth during the quarter.

We remain confident that with our experienced and motivated team, the Company will maintain its consistent momentum and be well-positioned to take advantage of industry tailwinds to achieve sustainable growth in future periods.

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 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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