There are plenty of ASX tech shares that have been dumped by the market in recent weeks. They could be turnaround opportunities.
I’m a strong believer in ASX tech shares that can generate impressive operating leverage. I am attracted to names like Redbubble Ltd (ASX: RBL) and Pushpay Holdings Ltd (ASX: PPH).
But there are other ASX tech shares that have fallen which have impressive futures:
Kogan.com Ltd (ASX: KGN)
The Kogan share price has fallen by 53% since 25 January 2021. There has been a combination of factors that has impacted Kogan.
Worries about inflation leading to rising interest rates has certainly impacted the valuation. There has been a slowdown of growth as COVID factors start to subside (such as booming e-commerce growth).
Then there’s the inventory issues that Kogan told investors about in its HY21 result.
All of the above seem like one-off or shorter-term issues to me for the ASX tech share. I don’t believe that Kogan should trade at a super high earnings multiple, but I think its revenue growth, diversification and long-term operating leverage should command a higher price, particularly when combined with the attractive dividend.
According to CommSec forecasts, the Kogan share price is priced at 20 times the estimated earnings for the 2022 financial year.
Class Ltd (ASX: CL1)
Class is one of the largest players in the self-managed superannuation fund (SMSF) software.
The tech business commands quite high profit margins. In FY21 it’s expecting to see an underlying EBITDA margin (EBITDA explained) of 40%. When you combine that with good revenue growth, it can lead to pleasing net profit growth. Remember, net profit is one of the main measures that investors use to value a business.
Since 16 February 2021, the Class share price has declined 23%. That’s despite the company guiding that its revenue is going to climb 22% in FY21.
The ASX tech share can grow in a number of different ways. It can grow its core Class Super product by winning over more SMSF accounts, more accountants and slowly increasing prices. It also has a number of other products, such as Class Trust, as well as acquisitions to drive future growth.
Those acquisitions, such as ReckonDocs, opens up a bigger addressable market and gives Class the opportunity to cross-sell the different products to the different customer bases.
Using CommSec estimates, the Class share price is pried at 19 times the estimated earnings for the 2023 financial year.