My pick for a great share to buy in 2025 is ASX penny stock Mach7 Technologies Ltd (ASX: M7T).
Wait, wait – before you stop reading, hear me out!
Sure, the company's share price is down over 50% this year. And yes, the company posted a net loss of $8 million in FY24. I'll admit, on paper, things don't look great.
But this is a company in transition, and if it can deliver on its strategy in 2025, I think it could reward investors with a little faith.
What does Mach7 do?
Mach7 is a medical imaging company that provides services to hospitals, research facilities, and other medical institutions. The company's imaging platform is capable of integrating, standardising, and even interpreting data from many different sources. The aim is to give doctors and other healthcare professionals all the information they need to make optimal medical decisions for their patients.
How have Mach7 shares performed this year?
It's fair to say that Mach7 hasn't had the greatest 2024. At the time of writing, it looks likely that the stock price will end the year at least 50% lower. However, it has also been a transformative period for the company.
Over the past few years, Mach7 has been switching to a subscription-based business model. From a long-term perspective, this makes sense because the revenue the company generates from these contracts is actually higher. However, because it is recognised over the lifetime of the contract rather than upfront, the change dampens short-term revenues.
And that's exactly what happened in the company's FY24 results. Despite generating record numbers of new sales orders, year-on-year revenues were down 3%, and the company reported a net loss of $8 million. Frustrated shareholders—unassured by the company's insistence that the subscription-based strategy was working—decided to jump ship.
The Mach7 share price took a further hammering after the company released its first quarter FY25 business update on 31 October 2024. Although the company reaffirmed its outlook for revenue growth of 15% to 25% for FY25, investors were unimpressed with the company's sluggish first-quarter performance.
Why could 2025 be a breakout year for Mach7 shares?
A subscription-based business model can be better for both the business and its shareholders. It means the business has more confidence in its future revenues, making it easier for it to do things like budget, grow, and even pay dividends.
In FY24, recurring revenues from subscription contracts made up 72% of total revenues, a significant uplift from the 52% they contributed in FY23. This trend held up in the first quarter of FY25, where 65% of sales orders were from subscription, maintenance and other recurring fees.
If Mach7 can deliver on its revenue growth target for FY25, and if the majority of that comes from recurring revenues, this could make the company a much safer investment in years to come.
That's why, in a few years' time, I think we might all look back on 2025 as the year everything changed for Mach7.
What are the risks?
Mach7 is a small-cap growth stock, which makes it a higher-risk investment.
Because growth stocks are often junior companies with no track record of success, most of their current value depends on investors' expectations about their future profitability. Any changes to those expectations—especially those caused by changes in inflation or interest rate projections—can have an outsized impact on the prices of growth shares. This can make the share prices particularly volatile, making them suitable only for investors with a high-risk tolerance.
However, one advantage Mach7 has over other junior growth stocks is that it is debt-free. Junior companies are often highly leveraged—until they get their business off the ground, they usually have to borrow money to sustain their operations. This makes them particularly vulnerable to interest rate rises because it means they have to pay more to service that debt. For this reason, an investment in Mach7 may possibly be a little safer than other ASX growth stocks, given there is still plenty of uncertainty around what rates will look like next year.
