TechnologyOne Ltd (ASX: TNE) shares have been on fire again this year.
Since the start of the year, the ASX 200 tech stock has risen 32%.
This means that the enterprise software provider's shares are now up approximately 380% over the past five years.
Can its shares keep rising? Let's see what Bell Potter is saying.
What is the broker saying about this ASX 200 tech stock?
Unfortunately, while the broker believes that TechnologyOne is a high-quality company, it feels that its shares have now peaked for the time being.
This is despite it continuing to forecast strong growth from the high-flying ASX 200 tech stock in the coming years. It said:
We continue to forecast PBT growth of 19%, 20% and 20% in FY25, FY26 and FY27 which is close to VA consensus of 19%, 20% and 21%. We note our FY25 forecast of 19% growth is ahead of the company's guidance of 13-17% growth so we already – and the market – anticipate a beat in November.
We also note, however, our FY25 forecast assumes much lower PBT growth in H2 versus H1 – 10% versus 33% – due to flagged higher sales & marketing costs in H2. The upside risk to our FY25 forecast therefore is S&M costs are not as high in H2 as the company has flagged but, firstly, we have already allowed for some of this in our forecast and, secondly, the company has a recent history of delivering annual PBT growth in the mid to high teens and not higher.
Shares downgraded
Bell Potter thinks that all the above (and more) is already priced into its share price, which it feels means the risks are to the downside for investors.
As a result, according to the note, the broker has downgraded TechnologyOne's shares to a sell rating with a $35.75 price target. It said:
Our updated PT is an 11% discount to the share price and the total expected return including the forecast dividend yield is the same. We therefore downgrade our recommendation to SELL based on valuation (both absolute and relative).
The good news is that Bell Potter does see risks to its sell rating. It adds:
The risk to our SELL is there is no negative catalyst we can see and, as flagged, we expect the company to beat its FY25 guidance when it reports in November. But as highlighted the market already expects the company to beat and so we neither see a positive catalyst as we do not see much upside risk to our and the market's FY25 forecast.
It is also worth noting that analysts at UBS still see value in the tech stock. They have a buy rating and $42.20 price target on its shares.
