The WiseTech Global Ltd (ASX: WTC) share price has had a stellar run of late. The ASX technology share has gained more than 75% in 2023 to date, as we can see on the chart below.
For readers who haven't heard of this business, it's a software provider for the logistics industry globally. It services more than 18,000 of the world's logistics companies across 173 countries. These include 43 of the top 50 global third-party logistics providers and 24 of the 25 largest global freight forwarders worldwide.
After such a strong run, let's consider about the positives of investing in WiseTech shares right now.
Positives
ASX tech shares can earn very high profit margins because of the nature of software. Once software products are created, it costs little to continue bringing new customers on board.
In the FY23 half-year result, WiseTech reported an earnings before interest, tax, depreciation and amortisation (EBITDA) margin of 50% and a net profit after tax (NPAT) margin of 29%.
Certainly, a good (and growing) portion of revenue can turn into profit and cash flow for the company. This allows it to pay dividends and make more acquisitions. HY23 revenue rose by 35%, while NPAT went up 41%.
Judging by the high client retention rate and how many large customers use the software, I'd say the business has strong customer loyalty and good competitive advantages which, in turn, means it can increase prices. In HY23, CargoWise organic revenue rose 46%, thanks to "global rollouts, price increases and new product releases", as well as new customers.
The company continues to expand its position in the market. WiseTech recently made two acquisitions that give it capability across both road and rail.
While the business currently has a very low dividend yield, the company is rewarding long-term shareholders with huge dividend growth each result. For example, in HY23 the dividend rose by 39% year over year to 6.6 cents.
According to Commsec, the ASX share is expected to grow earnings per share (EPS) by 80% between FY23 to FY25.
Negatives about WiseTech shares
One of the main things often pointed out about the ASX tech share is that it trades on a very high price/earnings (P/E) ratio. It's often thought the higher the earnings multiple a company trades at, the more expensive it is.
According to Commsec, the WiseTech share price is valued at 119x FY23's estimated earnings. That may seem expensive compared to many other businesses on the ASX, but not many companies on the ASX are growing profit at the pace that WiseTech is.
It's also worth noting the dividend yield is extremely low. According to Commsec, in FY23, WiseTech could pay a grossed-up dividend yield of 0.2%.
Foolish takeaway
Over time, share prices usually follow the direction of the profit, so the fact WiseTech's profit is growing so quickly is a good sign. Will the profit growth justify the high valuation? So far it has. Unless profit growth suddenly drops off, I think the future is bright.
The company is winning new customers, increasing prices, offering new products, and growing profit margins. It's doing all the right things, and I believe global logistics is just going to keep growing, making WiseTech's offering even more important.
