Look for Aussie tech stocks with a global focus, says expert
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Australian tech stocks with a global focus are the ones to watch says tech expert Kevin O’Hara, chief investment officer for Tulla Private Equity Group.
Can Australian tech stocks keep up with their international rivals?
If you look at the microcap sector in the past four months, the market has really got behind Australian tech companies.
Anything that is building out a global audience, direct-to-consumer is hot right now.
The market is speculating on the actual adoption of a lot of these tech companies and they know they have a lot of money backing them to win.
Take GetSwift (ASX:GSW) for example. They are signing contracts at a rate of knots — but their market cap demonstrates that if you can get the tech developed and then start the roll-out, the market will back you.
Why the interest in Aussie tech stocks now?
A lot of Alpha has come out of small caps, and is starting to come down into micro caps.
Alpha is a measure of how a stock performs compared to a benchmark such as the ASX200. A positive Alpha means a stock is outperforming the benchmark.
At the moment we have Nasdaq at all-time highs, large caps at all-time highs, so people are looking at the larger end as being well priced. Instead, investors are moving further and further down in the size into micros and they are getting better returns.
What ASX tech stocks do you think have potential?
Titomic (ASX:TTT), Mobecom (ASX:MBM) and Novonix (ASX:NVX) as well as GetSwift mentioned above, have all done well in the market for the following reasons:
What all three have in common is that they have developed the proprietary tech and are now taking it to market.
Investors are wary of companies who are trying to build a product and are burning through money but if they can demonstrate a market fit, they are more than happy to put their money towards growth capital.
There’s no use putting investor money into the potential for client acquisition. A company needs to be able to map out exactly what that cost and what the result is likely to be so that investors can see a clear return on investment.
They back solid marketing and sales capabilities — it all comes down to the people.
In the tech space is it difficult to garner retail investor attention if the product is technical or difficult to understand?
For middleware providers, or SaaS (software as a service) standard business tech, investors are a little bit less excited because deals take longer to get off the ground.
Old school B2B (business-to-business) technology sales is a tough market. The cycles are long, good staff are hard to find and markets don’t want to buy into companies that are negotiating deals for two years.
The market wants to be constantly updated with what is happening, they want to see contracts signed and a solid news flow. This can be a failure for enterprises at the big end of town who are bidding on contracts now that won’t come off for five years.
Investors have become more sceptical with micro-cap stocks – they want to feel and understand what is happening because many have been burned before by a pumped stock that has no substance behind it.
In the last two to three years, people have started looking to announcements for validation.
Can a tech stock prosper in the Australian market alone?
The Australian market is so small that you really do need to be global, or at least aiming global.
Private company Society One is servicing the Australian market in P2P lending and have a phenomenal business solely focussed on Australia, but when you look at listed companies, investors prefer to speculate on a company that has potential to globalise.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.