If you’re looking for good long term options, then the tech sector could be a place for investors to start their search.
This is because the sector is home to a number of companies that have the potential to grow strongly over the next decade.
Two ASX tech shares that are highly rated are named below. Here’s why analysts rate them as buys:
Adore Beauty Group Limited (ASX: ABY)
The first ASX tech share to look at is Adore Beauty. Australia’s leading online beauty retailer has been growing strongly in recent years thanks to the structural shift online, which accelerated during the pandemic.
In fact, Adore Beauty is expecting to report a 43% to 47% increase in full year revenue in FY 2021 thanks to a sales surge during the height of the pandemic. And while it will be hard to deliver similarly strong growth in FY 2022, its long term growth trajectory looks very positive.
This is because online penetration rates for beauty products are still much lower than other categories and in comparison to other Western markets.
The company notes that the beauty and personal care (BPC) market in Australia is worth $11.2 billion and is expected to grow at a 26% CAGR through to 2024. It also notes that online sales comprise just 11.4% of the BPC market at present.
As a result, Adore Beauty appears very well-positioned to continue its growth over the next decade. Particularly given its leadership position in the growing online market. Another positive is that the Adore Beauty Loyalty program launched in March, with sign-ups ahead of expectations.
UBS is a fan of Adore Beauty. Its analysts currently have a buy rating and $5.60 price target on the company’s shares. UBS believes the company will benefit from structural tailwinds in the coming years.
Xero Limited (ASX: XRO)
Another ASX tech share to look at is Xero. It provides small and medium sized businesses with a cloud-based business and accounting solution.
Xero was on form again in FY 2021, recording a 20% increase in subscribers to 2.74 million. This was driven by a 20% increase in ANZ subscribers to 1.56 million and a 21% lift in International subscribers to 1.18 million. The latter includes 720,000 subscribers in the UK market.
Pleasingly, the company is still only scratching at the surface of its global market opportunity. Management estimates that it total addressable market is currently 45 million subscribers.
In addition to this, the company’s growth should be boosted by its growing app ecosystem.
Goldman Sachs believes that if Xero can monetise this ecosystem and execute its international expansion successfully, it has the potential to underpin strong top line growth for a long time to come.
In light of this, the broker is very bullish on Xero and has a buy rating and $165.00 price target on its shares.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Xero. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Adore Beauty Group Limited. The Motley Fool Australia owns shares of and has recommended Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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