Brokers have warned of an ‘unprofitable tech stocks’ bubble, but these ones are doing just fine
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For several months we have been hearing that the buy-now-pay-later sector is a bubble that is due to burst.
While Splitit (ASX: SPT) has declined since it announced a capital raising, Afterpay (ASX: APT) and Zip (ASX: Z1P) have continued to surge. In the months ahead, there may even be more players to enter the space.
But in recent days, there have been concerns about the entire tech sector.
Analysts, including from Perpetual and Canaccord, are concerned that stocks that have boomed in recent months will fall as investors realise they are not profitable.
This is not to say investors have ignored or disregarded this, rather they have thought user growth is enough. But perhaps Splitit’s decline is a warning for investors.
Nevertheless, there are ASX tech small caps that recorded a profit over $1m million in their most recent annual figures. While the broader sector has had a mixed performance this year, these stocks have gained 27 per cent this year.
Three of these stocks had profits over $10 million. Software solutions Integrated Research (ASX: IRI) had a $19.2 million profit after tax last financial year.
It appears the company will record a similar result this financial year with its half-yearly profit up 26 per cent to $11.7 million, thanks to increased sales. Not only does it have revenue but multiple sources including licensing, consulting and maintenance fees.
Queensland-based Data 3 (ASX: DTL) is another software provider. Last year its after-tax profit was $14.2 million and it is on track for a similar result with $6.1 million left after the most recent half year.
Despite being listed on the ASX for 20 years and experiencing share price growth in recent years, it is still only a small cap with a market cap of $278 million. Last week it won a contract to be the sole provider of Microsoft software to the West Australian government.
The one other stock with a $10m+ profit was Netcomm Wireless (ASX: NTC) which had $12.6 million left after tax last financial year. However, US-based Casa Systems is attempting to take over the company.
While some boards ignore takeover bids, NetComm’s has reccomended shareholders approve it and the Foreign Investment Review Board have signed off on the deal. The vote will occur on June 7.