ASX share price in focus
ASX Limited operates Australia’s primary national securities exchange. Besides being the place you go to for info on listed companies, ASX offers services behind the scenes including registry, settlement, clearing services, and exchanges for commodities and derivatives.
The company provides access to a variety of different tradeable products, including shares, futures, exchange traded funds (ETFs), managed funds, and real estate investment trusts (REITs).
ASX has a huge competitive advantage over other smaller exchanges due to its large size and established position as the go-to exchange for Australian investors. In fact, many Australian investors probably aren’t even aware that smaller exchanges exist!
The appeal of ASX tech shares
The S&P/ASX200 Info Tech Index (ASX: XIJ) has delivered an average annual return of 15.03% over the last 5 years, compared to the broader ASX 200’s 4.46% return. So, here’s why tech shares like ASX are drawing attention.
High Margins
Tech companies often boast better margins than more ‘traditional’ brick-and-mortar businesses. That is, they tend to be more profitable.
This is because they usually have low marginal costs and lower overheads (things like plant and equipment).
ASX’s latest annual report revealed gross margins of 96.20% and an operating margin of 72.40%.
Recurring revenue
Many tech businesses benefit from recurring revenue models like ‘software-as-a-service’ (SaaS). Compared to one-time product sales, this subscription-based approach generates consistent income, smooths revenue, and enhances predictability over time.
Global scale
Unlike physical businesses constrained by logistics, regulations, and trade wars, tech firms can often reach global markets with much less effort (and cost). By dealing in software accessible by something as simple as an internet connection, tech companies can quickly and efficiently increase their customer base.
ASX share price valuation
As a growth company, one way to put a rough forecast on the ASX share price could be to compare its price-to-sales multiple over time. Currently, ASX Ltd shares have a price-sales ratio of 8.16x, compared to its 5-year average of 8.12x, meaning its shares are trading higher than their historical average. This could mean that the share price has increased, or that sales have declined. In the case of ASX, revenue has been growing over the last 3 years.
Please keep in mind that context is important – and this is just one valuation technique. Investment decisions can’t just be based on one metric.
The Rask websites offer free online investing courses, created by analysts explaining things like Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). They even include free valuation spreadsheets! Both of these models would be a better way to value the ASX share price.
