The WiseTech Global Ltd (ASX: WTC) share price has dropped 17% since the company reported its earnings results on Wednesday.
The ASX tech share was trading at this level three months ago. Even so, that's a hefty fall, and when it comes to a company as high-quality as WiseTech, it's worthwhile considering whether the business is worth buying. We'll look at what the company reported and what to make of it.
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What did the ASX tech share report?
Wisetech reported a number of positives in its results for the 12 months to June 2023.
Total revenue increased by 29% to $816.8 million, with 21% organic growth, compared to FY22. The company said that there was "strong" growth from its CargoWise platform, with (recurring) revenue rising by 48% to $650.1 million.
For FY23, the company said that recurring revenue made up 96% of total revenue, up from 89% in FY22.
Earnings before interest, tax, depreciation and amortisation (EBITDA), excluding acquisition costs, increased by 28% to $321.3 million, underlying net profit after tax (NPAT) grew by 30% to $247.6 million, statutory net profit grew by 9% to $212.2 million and free cash flow improved by 23% to $291.4 million.
With the release of these profit numbers, the board of WiseTech decided to increase the final dividend by 31% to 8.4 cents per share.
Is the WiseTech share price an opportunity?
Those are impressive growth numbers – most ASX shares would be very happy to be able to report that level of underlying profit growth.
Not everything went in the right direction. The company's EBITDA margin declined from 50% to 47%.
As part of its outlook and guidance, the company said that it's expecting further EBITDA margin dilution from a full year of contributions from Shipamax, Envase and Blume, which have lower margins than the core business.
FY24 revenue is expected to grow to between $1.04 billion to $1.1 billion, which would be a rise of between 27% to 34%. EBITDA is expected to increase to between $455 million to $490 million, which would be growth of 18% to 27%.
Double-digit EBITDA growth is good, though investors may prefer to see the business delivering increasing margins due to operating leverage as the business scales.
However, the business may not be as expensive as some investors think it is.
When using the price/earnings (P/E) ratio, we're using the profit figure as part of the equation. In FY23, it made $212 million of statutory net profit, which puts the market capitalisation at 118x FY23's earnings.
Plenty of investors might argue that free cash flow is the better measurement to use because it's how much cash the business has actually generated and is less susceptible to creative accounting.
WiseTech made $291.4 million of free cash flow, and the company is valued at 86x FY23's free cash flow. That's still a high multiple, but it's not as pricey.
Time to buy WiseTech shares?
I don't think we can say the company is cheap, but there are a number of things going for it.
Revenue, profit, cash flow and the dividend are compounding at a solid double-digit rate. If it keeps growing then it will most likely justify the current price in the coming years.
It's investing heavily to grow its market position. The global logistics sector is a huge opportunity, and if WiseTech can embed itself as the global leader, then it will have locked in a lot of revenue for the long term. This will enable more software price increases if customers are 'sticky'. If the company can sell more of its software offerings (such as landside logistics) to clients, this can boost margins further, grow the value of each customer and hopefully accelerate the company's bottom line.
I wouldn't say WiseTech would be the first ASX growth share I'd buy today, but the lower it goes, the better value this impressive business becomes.
