Brokers say this rapidly growing ASX 200 tech stock is a strong buy

Big returns could be on the cards for owners of this stock.

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Investors that are looking for exposure to the tech sector, might want to consider enterprise software company TechnologyOne Ltd (ASX: TNE).

That's the view of analysts at Bell Potter and Goldman Sachs, which have both spoken very positively about the ASX 200 tech stock this week.

Why is TechnologyOne an ASX 200 tech stock to buy?

Both brokers believe that the company is well-positioned to deliver very strong growth for the foreseeable future.

Commenting on its upcoming half-year results release, Bell Potter is expecting management to provide its usual guidance with the results. However, it feels this is conservative and believes stronger growth is possible. It said:

We expect Technology One to provide its typical guidance of 10-15% PBT for the full year but believe this is conservative and likely to be exceeded. The company, for instance, exceeded the guidance in FY23 with PBT growth of 16% and we currently forecast growth of 18% in FY24. The premise for our above guidance forecast is we expect revenue growth to be around mid teens (consistent with NRR of around 115% before any new logos) and margin expansion of between 50-100bps.

But its growth won't stop there. Bell Potter expects even stronger growth from the ASX 200 tech stock in the years that follow. It adds:

There is no change in our forecasts and, as mentioned, we currently forecast PBT growth of 18% in FY24 followed by 19% in FY25 and 21% in FY26.

In light of this, Bell Potter has reiterated its buy rating and $18.50 price target. This implies a potential upside of almost 17% for investors.

Goldman's take

Over at Goldman Sachs, its analysts are equally positive on the company's outlook. They are also forecasting very strong earnings growth through to at least FY 2026. Its analysts explain:

In our view, the company is well placed to meet its A$500mn FY26 ARR target through a combination of SaaS flip uplift, net expansion and new customer growth. We see margin expansion resuming from FY24E onwards, which in combination with robust revenue growth should drive a mid-high teens EPS CAGR to FY26E, providing strong earnings visibility.

As a result, the broker has reaffirmed its buy rating and $18.05 price target on the company's shares. This suggests a potential return of 14% is possible for investors over the next 12 months.

It is also worth noting that both brokers are forecasting a modest dividend yield of 1%+ this year.

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 positions in and has recommended Goldman Sachs Group and Technology One. The Motley Fool Australia has recommended Technology One. 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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