TechnologyOne Ltd (ASX: TNE) shares have been a great performer in the past five years, rising 214%! However, the ASX tech share has endured significant volatility to get there. It's worthwhile asking whether it's still one of the best Australian stocks to buy.
There are very few ASX shares that have risen by more than 200% in the last five years. The S&P/ASX 200 Index (ASX: XJO) itself has risen just 21% over that period.
On one hand, past performance is not a reliable indicator of future performance. But, on the other hand, winners do have a habit of continuing to win as their economic moat continues to deliver results over the years.
Let's look at whether analysts think the business is an opportunity today or not.
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Analyst ratings on the top Australian stock
According to CMC Invest, there have been eight ratings on the business within the last three months, with six of those ratings being a buy and two being a hold.
Given how much the business has risen recently, analysts aren't expecting significant capital gains over the next year.
According to CMC Invest, the average price target of those eight ratings is $32.15. That implies a possible rise of 8.5% over the next 12 months from where it is at the time of writing.
If it does deliver that capital growth, it'd be a solid return, in my view, though it's not likely to be one of the top-performing Australian stocks with a single-digit return.
What could make TechnologOne shares a good buy?
The enterprise resource planning (ERP) software business has grown its annual recurring revenue (ARR) significantly over the last few years, passing $500 million. It's aiming to reach $1 billion of ARR in the next few years – likely by FY30.
TechnologyOne has a broad range of blue-chip clients such as government entities, local councils, businesses, universities and so on. To achieve $500 million of ARR (and then $1 billion of ARR) from these sorts of clients makes its revenue much higher-quality than revenue generated by many other businesses, in my view.
The world is becoming increasingly technological, connected and efficient, which are strong tailwinds for TechnologyOne, particularly as the clients can incorporate more of the ASX tech share's offering across its operations. TechnologyOne invests significantly in R&D to make the software the best it can be (and unlock more revenue growth).
TechnologyOne is achieving organic revenue growth of more than 15% from its existing client base each year, which means the business is growing at a strong speed. The operating leverage of software allows management to expect rising profit margins in the coming years.
According to the projection on Commsec, the TechnologyOne share price is valued at 49x FY27's estimated earnings.
I'd definitely describe TechnologyOne as one of the top Australian stocks – that's why I own some shares myself. But it's not cheap today, and analysts are not expecting big things from this business, so there could be better opportunities out there.
