Technology One Ltd (ASX: TNE) shares are slipping today.
Shares in the S&P/ASX 200 Index (ASX: XJO) software-as-a-service (SaaS) provider closed on Friday trading for $28.26. In early afternoon trade on Monday, shares are swapping hands for $28.27 apiece, down 0.3%.
For some context, the ASX 200 is down 1.3% at this same time.
Taking a step back, Technology One shares are down 14.5% over 12 months, with those losses modestly eased by the stock's 1.3% partly franked dividend yield.
However, with the ASX 200 tech stock having surged 40.2% since plumbing a one-year closing low on 13 February, Morgans Financial's Mitch Belichovski believes investors would do well to consider heading for the exit (courtesy of The Bull).
Here's why.
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Time to sell Technology One shares?
"TNE is one of Australia's largest enterprise software-as-a-service companies," Belichovski said.
"TNE provides enterprise resource planning software to thousands of corporations, government departments and statutory authorities," he added.
As for his bearish outlook on Technology One shares, Belichovski said:
While TNE enjoys strong market positions in Australia and New Zealand, the stock was recently trading on a lofty price-earnings ratio above 65 times, indicating it may be overvalued if growth falters.
Then there's rising interest rates, which tend to throw up headwinds for most ASX growth shares like tech companies. As well as the rapid rise of AI.
Summarising his sell recommendation, Belichovski concluded:
The company is exposed to higher interest rates and its subsequent implications regarding valuations of technology companies. Some uncertainty exists about the long-term impact of artificial intelligence on companies in the broader technology sector.
What is the ASX 200 tech stock saying about AI?
From mid-October through to mid-February, Technology One shares plunged more than 49%.
But it wasn't just Technology One stock getting hammered.
Over this same period, the S&P/ASX All Technology Index (ASX: XTX) crashed around 39%.
A lot of that pressure was driven by investor concerns that the rapid rise of AI could replace many of the services these tech companies offer. You may have heard this called the SaaSpocalypse.
But Technology One CEO Ed Chung expects that AI will help, rather than hinder, his company's performance in the years ahead.
In a market update on 18 February that saw the company upgrade its full year profit and revenue guidance, Chung noted:
SaaS+ and our products turbocharged through AI are our not so secret weapons, giving us the confidence to increase PBT growth to 18% to 20%, upgraded from our prior range of 13% to 17%, as well as guiding to ARR growth of 16% to 18%. We are targeting the top end of the guidance range for both PBT and ARR.
