Don't Avoid Quality 'Growth'

LiveWire10-09

It was by no means a universal outcome, with some of the smaller cap companies delivering unexpected negative surprises, but the Technology sector crowned itself as the best performing segment on the ...

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nDon't Avoid Quality 'Growth'\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-10-09 10:41 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://www.livewiremarkets.com/wires/don-t-avoid-quality-growth><strong>LiveWire</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>It was by no means a universal outcome, with some of the smaller cap companies delivering unexpected negative surprises, but the Technology sector crowned itself as the best performing segment on the ...</p>\n\n<a href=\"https://www.livewiremarkets.com/wires/don-t-avoid-quality-growth\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"NXL","symbol_name":"Nexalin Technology, Inc.","start_time":0,"source_url":"https://www.livewiremarkets.com/wires/don-t-avoid-quality-growth","article_id":"2474258008","we_media_id":null,"thumbnails":[],"rights":{"source":"livewire_stock","url":"https://www.livewiremarkets.com/wires/don-t-avoid-quality-growth","rn_cache_url":null,"directOrigin":true},"url":"https://stock-news.laohu8.com/highlight/detail?id=2474258008","pubTimestamp":1728441712,"sourceInfo":{"source_id":"livewire_stock","name":"Livewire Markets"},"weMediaInfo":null,"summary":"It was by no means a universal outcome, with some of the smaller cap companies delivering unexpected negative surprises, but the Technology sector crowned itself as the best performing segment on the ASX throughout the August reporting season.It wasn’t just about WiseTech Global , whose share price has been handsomely rewarded this year , but equally about Car Group , Hub24 , Pro Medicus , REA Group , ResMed  and smaller cap companies such as Bravura Solutions , Breville Group , Codan , DUG Technology , Electro Optic Systems , Life360  and Temple & Webster .Not all of these names are part of the local Technology Index, but respective core businesses very much revolve around new innovations and keeping up with the latest developments in technological advances and breakthroughs. In extension, we might even include some of the direct beneficiaries of Gen.Ai, Goodman Group  & Co, which are not technology companies in se, but their growth momentum and attraction is very much related to the ","collect":0,"end_time":0,"defaultTopTitle":"livewiremarkets.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"NXL":"Nexalin Technology, Inc.","REA.AU":"REA GROUP LTD","BRG.AU":"BREVILLE GROUP LTD","CAR":"安飞士","EOS.AU":"ELECTRO OPTIC SYSTEMS HOLDIN","EOS":"Eaton Vance Enhanced Equity Inco","PPS":"波斯特房产信托","NXL.AU":"NUIX LTD","TPW.AU":"TEMPLE & WEBSTER GROUP LTD","HUB.AU":"HUB24 LTD","SDR":"SandRidge Mississippian Trust II","DHG.AU":"DOMAIN HOLDINGS AUSTRALIA LT","MP1.AU":"MEGAPORT LTD","GMG.AU":"GOODMAN GROUP","BTH.AU":"BIGTINCAN HOLDINGS LTD","SPZ.AU":"SMART PARKING LTD","BVS.AU":"BRAVURA SOLUTIONS LTD","SLC.AU":"SUPERLOOP LTD","360.AU":"LIFE360 INC-CDI","DUG":"二倍做空石油与天然气ETF(ProShares)","CBA":"ClearBridge American Energy MLP Fund Inc","WTC.AU":"WISETECH GLOBAL LTD","CAR.AU":"CAR GROUP LTD","AD8.AU":"AUDINATE GROUP LTD","ROIC":"Retail Opportunity Investments C","BVS":"Bioventus Inc.","SDR.AU":"SiteMinder Ltd","DUG.AU":"DUG TECHNOLOGY LTD","BRG":"Bluerock Residential Growth REIT Inc","NWL.AU":"NETWEALTH GROUP LTD","CDA.AU":"CODAN LTD","RMD":"瑞思迈","RMD.AU":"Resmed DRC","CAT.AU":"CATAPULT GROUP INTERNATIONAL","PME.AU":"PRO MEDICUS LTD","NWL":"纽威","PPS.AU":"PRAEMIUM LTD","DHG":"DWS High Income Opportunities Fu","JIN.AU":"JUMBO INTERACTIVE LTD","PME":"平潭海洋实业有限公司","HSN.AU":"HANSEN TECHNOLOGIES LTD","CAT":"卡特彼勒","RDY":"如瑞迪博士","RDY.AU":"READYTECH HOLDINGS LTD","XRO.AU":"XERO LTD","RUL.AU":"RPMGlobal Holdings Ltd","HPG.AU":"HIPAGES GROUP HOLDINGS LTD","TNE.AU":"TECHNOLOGY ONE LTD","CBA.AU":"COMMONWEALTH BANK OF AUSTRAL"},"translate_title":"不要回避高质量的“增长”","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"RMD":1,"MP1.AU":1,"NWL":1,"NWL.AU":1,"NXL":1,"NXL.AU":1,"PME":1,"PME.AU":1,"PPS":1,"PPS.AU":1,"RDY":1,"RDY.AU":1,"REA.AU":1,"JIN.AU":1,"RMD.AU":1,"ROIC":1,"RUL.AU":1,"SDR":1,"SDR.AU":1,"SLC.AU":1,"SPZ.AU":1,"TNE.AU":1,"TPW.AU":1,"WTC.AU":1,"XRO.AU":1,"CBA.AU":1,"AD8.AU":1,"BRG":1,"BRG.AU":1,"BTH.AU":1,"BVS":1,"BVS.AU":1,"CAR":1,"CAR.AU":1,"CAT":1,"CAT.AU":1,"CBA":1,"360.AU":1,"CDA.AU":1,"DHG":1,"DHG.AU":1,"DUG":1,"DUG.AU":1,"EOS":1,"EOS.AU":1,"GMG.AU":1,"HPG.AU":1,"HSN.AU":1,"HUB.AU":1},"content_text":"It was by no means a universal outcome, with some of the smaller cap companies delivering unexpected negative surprises, but the Technology sector crowned itself as the best performing segment on the ASX throughout the August reporting season.\nIt wasn’t just about WiseTech Global (WTC), whose share price has been handsomely rewarded this year (40% up post August result), but equally about Car Group (CAR), Hub24 (HUB), Pro Medicus (PME), REA Group (REA), ResMed (RMD) and smaller cap companies such as Bravura Solutions (BVS), Breville Group (BRG), Codan (CDA), DUG Technology (DUG), Electro Optic Systems (EOS), Life360 (360) and Temple & Webster (TPW).\nNot all of these names are part of the local Technology Index, but respective core businesses very much revolve around new innovations and keeping up with the latest developments in technological advances and breakthroughs. In extension, we might even include some of the direct beneficiaries of Gen.Ai, Goodman Group (GMG) & Co, which are not technology companies in se, but their growth momentum and attraction is very much related to the latest megatrend, which is technology-driven.\nFor most of these companies, in particular the large caps, August has not been a one-off. Anyone opening up a 10-year historical price chart, or longer, can easily see how strong, consistent and prolonged the rewards for loyal shareholders have been.\nTaking into account how both banks and resources tend to go ‘missing’ for long periods of time, there’s but a fair argument to be made achieving positive returns from the local bourse has become a lot easier through Technology in the post-GFC era, which still continues.\nAs I have observed on multiple occasions over the years past: the local Technology sector offers Nasdaq-alike returns, or better. Yet, your average Australian investor might be forgiven for completely missing that point.\nFrom mainstream media to local newsletters and tip sheets, most reports and commentary revolves around banks and other financials, and about mining companies and energy producers, China, coal, lithium, housing, dividends and franking.\nOnly occasionally there’s time and space left for your typical high-achieving local Technology champion.\nWhy is this so?\nAt the recent Livewire Live 2024 conference, Dushko Bajic, head of Australian equities growth at First Sentier Investors, suggested Australian media, and by extension Australian investors, are mis-guided by their perception of what makes an attractive investment.\nMost commentary around local Technology companies focuses on the elevated Price-Earnings (PE) ratios these stocks trade on, and that’s usually where the attention stops.\nIndeed, if a high PE automatically translates into dismal investment returns ahead then the companies mentioned have collectively done an excellent job in proving otherwise.\nBajic also made the point the Australian share market harbours some of the best Technology companies in the world. His number one favourite? WiseTech Global, still.\nOthers with dedicated interest have throughout the years past expressed similar views, including myself. This does not change the fact your average Australian investor is constantly directed towards ‘cheap’ looking small cap cyclicals and dividend-paying financials, away from the better performing, ‘expensive’ looking segment.\nTo help those who’d like to overcome their natural inhibition against investing in higher-valued, champion performers, let’s address some of the issues seldom discussed or explained.\nOur starting point is by acknowledging Technology stocks on the ASX do trade on PE multiples that are well above the market average, not to mention banks and resources that usually trade on below-average multiples, making stocks like Pro Medicus or WiseTech Global look extremely expensive.\nEqually important, when comparisons are made with international peers, usually in the USA, multiples on the ASX tend to be noticeably higher as well. The usual complaint made is something along the lines of: I can buy Microsoft or Apple while trading on much lower multiples, why would I bother with WiseTech shares or Pro Medicus on such high multiples?\nAn expert like Bajic would defend the local choices by stating they are among the highest quality performers globally, often grabbing market share and exerting dominance in sectors and sub-sectors that offer faster growth with less threats from regulatory intervention, while allowing for higher margins behind a solid operational moat.\nA recent study by analysts at Canaccord Genuity backs up that view, concluding the better equipped Technology performers on the ASX offer world-leading financial metrics, placing them among the best of the best, globally.\nIt is equally true the ASX offers less choice for institutional investors who’d like to stock up on exposure to high-quality growth performers, and this probably means these investors have to accept that seeking out quality growth locally comes with a higher price tag.\nThe latter is often highlighted by your typical value investor as a stern no-no, but it’s important to also highlight the first factor, as well as the fact none of the above has prevented the local sector from delivering above average returns over extended periods of time.\nJust like CommBank’s (CBA) premium valuation has not prevented Australia’s largest bank from delivering superior returns vis a vis the rest of the local sector over the past 15 years.\nWithin this context, Bajic referred to WiseTech Global shares that IPO’d on the ASX at $3.35 in April 2016 and have traded on an average PE of 75x since. Sounds expensive? The share price today is $133 for a total market cap of $43.68bn, making WiseTech a Top20 member locally by company size.\nFor those who like to see numbers: the total return over 8.5 years is 3,870.15% or 47.22% CAGR per annum.\nOthers have equally provided outsized returns, be they Hub24, Pro Medicus, REA Group, TechnologyOne (TNE), Car Group or Xero (XRO), and over longer periods of time as they listed much earlier.\nOne observation to add is the number of IPOs has pretty much dried up in recent years while numerous promising names have left the ASX, including Altium, Elmo Software and Nearmap while others such as ReadyTech Holdings (RDY) and Bigtincan Holdings (BTH) might soon succumb to take-over interest.\nThe good news is expectations are building for a pick-up in fresh IPOs which should add new ideas to the bourse for investors. Canaccord analysts report the relative higher valuations on the ASX make it extra-attractive for technology companies to list locally.\nWhich brings us to the most tricky part of this story: if not by PE ratio, how does one ‘value’ these high-performing, high-quality, sustainable growth companies?\nI often refer to consensus price targets myself, but many of these companies have repeatedly, if not persistently, traded above targets set by analysts, which yet again feeds into the perception these stocks are always too expensive, keeping investors at bay.\nAs such companies’ valuation typically benefits from lower bond yields, I’d wager some additional premium is built-in because of bond markets pricing-in aggressive cutting from the Federal Reserve & Co (though continued robust growth is what ultimately makes the share price trend upwards).\nThe study by Canaccord Genuity concludes the best valuation methodology remains the so-called Rule of 40, whereby revenue growth and EBITDA margin combined sum up to 40 or more. Companies that outperform are typically those that can accelerate either top line growth, or expand their margin, or both.\nLooking back at FY24 results in August, Canaccord Genuity has highlighted Bravura Solutions, Catapult Group International (CAT), Domain Group Australia (DHG), Superloop (SLC), Objective Corp (OCL), Praemium (PPS), Megaport (MP1), Nuix (NXL), Smart Parking (SPZ), hipages (HPG) and SiteMinder (SDR).\nThe obvious observation to make is most of these companies are still loss-making or making a come-back from not-so-great times. This means their current momentum might not last and prove temporary only.\nAlso, as witnessed in August, smaller cap growth companies are more at risk for succumbing to the unexpected hiccup than the larger cap peers mentioned.\nThink Audinate Group (AD8), for example, or Hansen Technologies (HSN).\nAlso taking into account a company’s return on invested capital (ROIC) refocuses the attention towards the better capital allocators. Canaccord’s study highlights some with the highest ROIC: Netwealth Group (NWL), Pro Medicus, Jumbo Interactive (JIN), RPMGlobal Holdings (RUL), TechnologyOne, and REA Group.\nFor those who’d like to still get on board some of Australia’s prime success stories, but do not want to overpay for the privilege, the strategy that suits best might be to draw up a short list of desired exposures, and wait for that calamity that eventually will impact on the share price.\nAnother strategy might be to start nibbling but keep enough powder dry to purchase more exposure over time. If share prices rally higher, you may not have the full allocation, but you are benefiting already. If the share price falls, you’re averaging in with a longer-term focus.\nFNArena offers truly impartial, independent, ahead-of-the-curve share market analyses and insights, on top of proprietary data and tools for self-managing and self-researching investors. 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