It was a day to forget for Gentrack Group Ltd (ASX: GTK) shares on Tuesday.
The ASX tech stock finished the day 38% lower at $2.99 following the release of a trading update.
This means that the utilities software provider's shares are now down 75% from their high.
Has this created a buying opportunity or should you avoid this one? Let's see what Bell Potter is saying.
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What is the broker saying about this ASX tech stock?
Bell Potter notes that Gentrack has "materially" downgraded its earnings guidance for FY 2026. It is now expected to be significantly lower than Bell Potter and consensus estimates.
Bell Potter suspects that the cause of the ASX tech stock's revenue decline has been a failure to execute on its near-term pipeline. It explains:
NRR (project) revenues were guided to decline YoY, which suggests GTK has been unable to execute on its near-term pipeline outlined at its Strategic Day in Nov '25 comprising of 3 tenders as preferred, 3 short-listed, and well-placed at 4 others for CY26 counterparty decisions, noting some of these would have been pushed into FY27/CY27 regardless. Project revenues are an 'at-risk' bucket, requiring an on-going pipeline to replace rolled-off projects to prevent segment revenue going backwards and dragging at Group level against ARR [annual recurring revenue], which will naturally occur as the business matures.
The broker also highlights that converting its non-recurring project revenues into ARR is now a concern and could make medium-term targets harder to achieve. It adds:
Expected recurring revenue growth of 10% for FY26 is at least positive, however conversion of NRR into growth in future periods for provisioning of billing/CRM stack is now a concern despite management commentary. Maintaining medium-term growth targets on lower bases implies lowered expectations in future periods in our view and potentially indicates lost tenders in the pipeline, rather than pushed into future periods.
Should you invest?
Despite the many negatives, Bell Potter remains positive on this ASX tech share.
In response to its update, the broker has retained its buy rating with a heavily reduced price target of $5.60 (from $8.80).
Based on its current share price of $2.99, this implies potential upside of 87% for investors over the next 12 months.
Commenting on its recommendation, Bell Potter said:
Our Target Price is reduced to A$5.60sh and we maintain a Buy rec on the broader macro trends supporting utility billing stack/digital transformations. However, the current difficulty in converting pipeline into projects negatively impacts GTK's ability to convert into ARR in future periods which would imply an ex-growth multiple.
