Tech shares are often among the best growth shares on the ASX. I’d be very happy to go Christmas shopping for some of them for my portfolio.
If I were looking to buy some ASX tech shares, these are three I’d put at the top of my list:
Pushpay Holdings Ltd (ASX: PPH)
Pushpay, the digital donation business which focuses on large and medium US churches, is one of my highest-conviction ideas at the moment. Interest rates have pushed the valuations of a lot of tech shares really high. Many are at eye-watering prices. But Pushpay still looks reasonable. According to CommSec numbers, it’s priced at 24 times the estimated earnings for the 2023 financial year.
The growth rate of the ASX tech share may slow in 2021 as COVID-19 effects change, but I still believe that there’s a long term tailwind as more payments change to digital rather than cash. In the Pushpay FY21 interim result it grew operating revenue by 53% and it’s expecting to increase its EBITDAF (EBITDA explained, the F stands for foreign currency) by more than 100% to a range of US$54 million to US$58 million.
Pushpay can keep winning over smaller churches and diversify its customer base to other religions or countries for a long time to come, in my opinion.
Redbubble Ltd (ASX: RBL)
Redbubble is a very exciting tech share in my opinion. Dominant e-commerce businesses have a strong advantage for a couple of reasons. Firstly, once the website and features have been developed there isn’t a lot more costs to spend on – a lot of the revenue can just fall to the EBITDA and net profit lines of the accounts.
Another reason to love dominant online businesses is that the leader in the space will attract the most potential shoppers because they’re looking for the biggest range of products to choose frm. This large customer base then attracts more sellers – merchants want to go where they might get the most sales. More products on sale then attracts more consumers. And so on. It’s a strong cycle.
After excluding a positive bonus relating to delivery times, Redbubble’s marketplace revenue grew by 98% in the first quarter of FY21. Gross profit grew 118% and it generated $17.2 million of EBIT. It’s hard to say how much Redbubble will grow during 2021, but if you simply say that Redbubble could generate $68.8 million of EBIT in FY21, a multiple of 23 times doesn’t seem stretched at all for what could be a decade of growth for the ASX tech share.
Betashares Nasdaq 100 ETF (ASX: NDQ)
This ETF is invested in many of the US’, and the world’s, biggest and best technology businesses. There are names like Apple, Microsoft, Amazon, Alphabet, Tesla, Facebook, Nvidia, PayPal and Adobe in the ETF portfolio.
Many of those tech businesses have been very strong performers during 2020 and over the long term. When you look at the products and services of those FAANG (and other) names, I can’t see anything that would dislodge them for a long time to come. They’re actually at the forefront of how we find entertainment, find information, connect with people and so on. I believe there’s more growth to come here.
Whilst this ETF is best known for the global tech giants, it actually has many other high-growth or topical businesses its 100 holdings. COVID-19 shares Zoom, Moderna and Regeneron are in there. US-listed, Asian tech giants JD.com and Baidu are in the holdings. There are high quality, less well-known names in there like Advanced Micro Devices, Intuitive Surgical, Applied Materials and Mercadolibre. It’s a really high-quality portfolio.
Betashares Nasdaq 100 ETF is not cheap right now. The ETF has delivered a net return of 34.4% over the past year and it has a price/earnings ratio of around 32 according to BetaShares. However, good businesses usually keep delivering and the Aussie dollar is currently at $0.76 compared to the US dollar, so it’s a good time to be buying US businesses in foreign currency terms. The Aussie dollar hasn’t been this strong since mid-2018.
There are some other ASX growth shares that are worth looking into as well such as Altium Limited (ASX: ALU).