ASX tech shares could be a great choice for 2021 if they can keep delivering growth.
The technology sector has a strong advantage compared to other industries. It’s a lot easier to expand with software than other sectors like banking, resources or insurance.
But not every technology business is worth buying. Some IT businesses are trading very expensively at the moment, particularly because of the ultra-low interest rates. These ones look good value and exciting to me:
Pushpay Holdings Ltd (ASX: PPH)
Pushpay is one of my high-conviction ideas at the moment. It has everything that you’d want to see from a potential market-beating idea.
It has clear operating leverage – in the FY21 half-year report its gross profit margin increased from 65% to 68% and the EBITDAF margin (EBITDA explained, the F stands for foreign currency) improved from 17% to 31%. The size of that increase suggests there’s more to come.
Pushpay has international growth, which seems to be a very helpful factor for delivering market-beating returns. It’s growing fast in the US large and medium church sector, but it could also expand to other countries or other religions.
It has a healthy balance sheet despite the Church Community Builder acquisition and its strong operating cashflow will help build the cashflow balance.
In terms of valuation, I think it looks very reasonable to me. Pushpay is valued at 31x FY22’s estimated earnings.
VanEck Vectors Video Gaming and eSports ETF (ASX: ESPO)
This ETF gives investors exposure to the attractive video gaming sector. COVID-19 saw some people turning to gaming to help get through the COVID-19 pandemic lockdowns, with many places in the northern hemisphere still having difficulties.
Video games were doing well even before COVID-19. And now just look at how much demand there is for a PS5 at the moment.
The underlying index that this ETF tracks has performed exceptionally well – rising 68.75% over the past year, 31.45% per annum over the last two years and 36.2% over the past five years.
There aren’t too many video gaming businesses to invest in. The VanEck Vectors Video Gaming and eSports ETF currently has 25 positions. Its biggest positions are: Tencent, Nvidia, Advanced Micro Devices, Sea, Nintendo, Bandai Namco, Bilibili, Nexon, Activision Blizzard and Take Two Interactive Software.
There’s a nice mixture of geographical location with this ETF. The US exposure is just under a third, Japan makes up just under a quarter, China is just under 20% and then the other countries account for less than 10%: Singapore, South Korea, Poland, France, Sweden and Taiwan.
The returns for the the next five years probably aren’t going to be as good as the last five, but I think VanEck Vectors Video Gaming and eSports ETF could provide continuing good returns in 2021.
There are other ASX tech shares I also believe could be solid performers in 2021 such as Redbubble Ltd (ASX: RBL) and Serko Ltd (ASX: SKO).