July 2021 could be a great month for investors to buy ASX tech shares.
Concerns about beating last year’s strong growth numbers and looming rising interest rates have pushed some share prices lower.
I’ve got my eyes on these two technology businesses:
Pushpay Holdings Ltd (ASX: PPH)
Pushpay is a digital donation ASX tech share.
It’s one of the businesses that is enabling a transition to a cashless society.
The main client base is large and medium churches in the US. Pushpay has a long term goal of US$1 billion from this segment of the market if it can reach a market share of around 50%.
One of the main advantages of Pushpay (and many tech shares) is that once the platform and systems have been developed, a lot of the new revenue can translate into more profit growth because of the low incremental costs of more donation volume.
Pushpay’s gross profit margin went up to 68% in FY21. Combined with low expense growth, Pushpay’s net profit and cashflow both soared.
It’s expecting more growth in FY22 from its core client base as the US economy recovers. Pushpay is also investing to grow in the Catholic segment. This could open up diversification opportunities in the education sector.
When looking at the earnings multiple valuation, I think it looks like it’s reasonable at 32 times the estimated earnings for the 2022 financial year.
Redbubble Ltd (ASX: RBL)
Redbubble is a very interesting ASX tech share.
It is an e-commerce business where people can buy products that have designs on them created by artists.
Redbubble is growing sales at a rapid pace and it’s planning to continue to invest heavily to pursue that opportunity.
The e-commerce business is looking to invest in a number of different areas to improve the offering for artists and shoppers. It’s also going to invest in advertising, efficiencies and its website.
Before announcing its investment plan, Redbubble was seeing operating leverage with its earnings before interest and tax (EBIT) growing at a much faster rate. FY21 third quarter marketplace revenue went up 54% and EBIT rose 91%.
After the strong investment phase, Redbubble is expecting to achieve higher profit margins once it reaches annual marketplace revenue of $1.25 billion in a few years.
The Redbubble share price has fallen around 40% over the last six months, making it better value today for new investors to consider.
These two ASX tech shares are two of my favourite ASX growth shares because of the operating leverage and market size opportunity.
