2 ASX tech shares about to go cash-flow positive

It’s no secret that ASX technology shares have struggled this year.

The trouble is not with the sector per se, but it’s that tech is an industry full of growth stocks.

Most tech firms are offering something innovative to the market rather than trying to compete in an existing category. This means they’re focused on growing the customer base. 

A growth stock relies on future earnings to justify its valuation. But now that interest rates are 175 basis points higher than three months ago, the cost of future performance is considerably higher.

This is why ASX growth and tech shares have suffered so much in 2022.

Multiple experts have told The Motley Fool that now the name of the game is to be profitable, or at least operate on positive cash flow.

The idea is that if you’re generating your own cash then you need not borrow to keep the business going. Not borrowing means your fortunes are not dependent on low interest rates.

With this in mind, the team at Forager Funds this week named two ASX tech shares it holds that are heading in the right direction:

‘Costs are well controlled’

Communications tech provider Whispir Ltd (ASX: WSP) burned through $5.2 million of cash for the quarter ending June.

According to Forager, it now has $26.1 million in its bank account.

“But the pure cash-flow numbers belie the progress the business has been making,” Forager analysts stated in a memo to clients. 

“While the full results won’t be released for a couple of weeks, commentary in the cash-flow summary suggested revenue will exceed prior guidance of 42% growth and that costs are well controlled.”

While cash flow is negative at the moment, the Forager team reckons this will turn around fairly soon.

“Next financial year should already see free cash-flow generation.”

Whispir shares have lost about half their value this year. The company will report its financials on 24 August.

Cyan Investment Management portfolio manager Dean Fergie told The Motley Fool last month that if Whispir can rein in its costs, it “could actually be quite a good business”.

“This is one of these businesses that has got a really, really strong corporate client base, which is positive, [and] really, really strong growth in revenues.”

‘Free cash flow this financial year’

Corporate software maker Bigtincan Holdings Ltd (ASX: BTH) is in a similar spot, burning through $4.9 million last quarter, leaving $39 million in the bank.

The Forager team expects positive cash flow for this ASX tech share even sooner than Whispir though.

“Growing revenue and a falling cost base should result in free cash flow this financial year,” the memo read.

“The annual revenue run-rate rose a healthy 25% organically to $120 million, slightly above prior guidance and setting the business up well for future years.”

Bigtincan shares are down about 30% year-to-date. The company will reveal its results on 25 August.

While coverage is sparse on the $400 million tech company, both analysts surveyed on CMC Markets currently rate the stock as a strong buy.

The post 2 ASX tech shares about to go cash-flow positive appeared first on The Motley Fool Australia.

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More reading

• Loss-making ASX shares: Big investment opportunity or extreme risk?
• Why is the Whispir share price tumbling 10% on Monday?
• ‘Great long-term investment’: Expert names small-cap ASX share to buy for cheap

Motley Fool contributor Tony Yoo has positions in Whispir Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended BIGTINCAN FPO and Whispir Ltd. The Motley Fool Australia has positions in and has recommended BIGTINCAN FPO. The Motley Fool Australia has recommended Whispir Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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