It's not often that one of Australia's top shares goes on sale, yet that's what has happened with the TechnologyOne Ltd (ASX: TNE) share price.
As the chart below shows, the ASX tech share has dropped 34% in the last six months. That's despite the enterprise resource planning (ERP) software business continuing to deliver strong growth.
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Great revenue momentum
The business has been growing for many years, and its outlook for expansion continues to be promising.
TechnologyOne achieved its $500 million annual recurring revenue (ARR) goal 18 months early, and it has set a goal of reaching at least $1 billion of ARR by FY30.
It has a high customer retention rate, and its existing customer base is seeing strong revenue growth. A reason why I think it's one of Australia's top shares is its net revenue retention (NRR) goal of 115%, meaning its existing customer base delivers 15% higher revenue than last year.
Growing at 15% per year means doubling in five years.
Its customers continue to adopt products and modules faster, with average customer ARR going from $100,000 in FY12 to more than $442,500 in FY25.
Excitingly, the business has its sights set on significant expansion in the UK, with local government, businesses, and education offering a large addressable market. In FY25, it won the Islington London Borough Council and the Council of the Royal Borough of Greenwich as new subscribers.
Good profit prospects
The company's profit looks like it's on a good track if earnings just grow at the same pace as the revenue.
However, the business is expecting its profit margin to rise in the coming years, thanks to the economic benefits of software and growth.
In FY25, the business reported its profit before tax margin was 29.75%. It's expecting that margin to improve to at least 35% in the coming years, driven by the "significant economies of scale" from its "single-instance, multi-tenanted global SaaS ERP solution and the customer response."
If it can deliver higher margins, I think the business will become increasingly attractive to investors, and the TechnologyOne share price could climb over the long term.
Much better valuation
When one of Australia's top shares noticeably falls, I think the prospects for good returns are increased.
Following the drop of more than 30% in the past six months, it's now valued at 38x FY28's estimated earnings, according to the projection on Commsec.
I think the business is significantly undervalued at 38x FY28's estimated earnings.
