Big returns could be on offer for investors buying the ASX growth stock in this article.
That's the view of analysts at Goldman Sachs, which are feeling very positive about this company.
Which ASX growth stock?
The ASX growth stock that the broker is tipping as a buy is Readytech Holdings Ltd (ASX: RDY).
It is a leading provider of mission-critical software-as-a-solution (SaaS) for the education, employment services, workforce management, government and justice sectors.
Earlier this week, the company released its full year results and revealed a 10.2% increase in revenue to $113.8 million and a 13% lift in subscription revenue to $95.4 million.
Underlying EBITDA also increased, driven by continued success with recurring revenue model and operational leverage. It was up 11.5% to $38.8 million.
And looking ahead, the ASX growth stock is guiding to revenue growth accelerating to low-to-mid double digits and with an underlying EBITDA margin of 34% to 35%. The latter compares to 34.1% in FY 2024.
This went down well with Goldman Sachs, which described the year as another "milestone". The broker said:
RDY's FY24 result was another milestone in proving its organic growth credentials, with new enterprise contract wins and back-book expansion supporting a healthy low-to-mid teens revenue and mid-to-high teens earnings growth outlook. Execution in the Education vertical and on the Local Govt cloud transition (potential incremental ~$20-30mn ARR opportunity) could drive RDY towards its FY27 revenue target (A$170mn vs A$162mn GSe) and help re-rate RDY towards best in vertical SaaS peers.
Big potential returns
In light of the above, Goldman has reiterated its buy rating and $4.25 price target on the ASX growth stock. Based on its current share price of $3.10, this implies potential upside of 37% for investors over the next 12 months.
Commenting on its bullish view on the stock, the broker said:
RDY's defensive public sector end-markets and mission critical software solutions should protect its earnings outlook in the event of an economic slowdown. Further to its defensiveness, we believe the market has given RDY little credit for improving its organic profile since listing while the company has maintained solid margins and cash flow.
In our view, RDY will continue to grow mid-teens organically, underpinned by solid software metrics such as low churn at ~3% and high LTV/CAC. RDY trades at a large discount to ASX tech peers, both on an absolute and growth-adjusted basis, which we believe is too wide considering RDY's business quality and growth outlook. Buy.
