The WiseTech Global Ltd (ASX: WTC) share price rocketed 34.5% higher yesterday, but is the Aussie tech share overvalued?
Why did the WiseTech share price surge 35%?
The big factor was a bumper full-year earnings result from the logistics software company.
Total revenue for WiseTech grew to $429.4 million, up by 23% on the prior year. That included a 20% jump for its CargoWise core platform with revenue from newly acquired businesses up 29% to $166.4 million.
Earnings before interest, taxes, depreciation and amortisation (EBITDA) grew by 17% to $126.7 million on an EBITDA margin of 30%.
Impressively, WiseTech’s net profit after tax surged 197% to $160.8 million including a fair value gain of $111.0 million.
The software group also reported a 1.60 cents per share fully franked dividend for shareholders.
That saw investors scramble to buy in with the WiseTech share price rocketing higher in yesterday’s trade.
Is the Aussie WAAAX share overvalued?
Valuing ASX tech shares is difficult at the best of times. However, if the coronavirus pandemic has taught us anything, it’s that tech and gold shares are in high demand.
I think a 35% jump in one day indicates that the WiseTech share price may be overvalued.
It’s rare to see any share surge that much higher and stay at that valuation in the long term. Determining intrinsic value is a tough game and I think we’ll see investors continue to trade WiseTech shares heavily in the coming days.
The WiseTech share price currently trades at a price-to-earnings (P/E) ratio of 96.9. That means you’re paying a lot today for expected growth tomorrow.
Yesterday’s revenue and EBITDA figures suggest that maybe it is worth that much. However, I think I’d rather err on the side of caution and think longer term than get trapped in the current tech mania.
Foolish takeaway
In a difficult earnings season, WiseTech has certainly delivered for its investors. I think the strong WiseTech share price gains indicate that there is still serious growth potential on offer.
However, given the lofty valuations tech shares are attracting, I think I’ll look elsewhere in the market for undervalued buys.
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More reading
- ASX 200 rises 0.7%, CSL soars 6.4%
- 4 ASX tech shares surging higher today on strong FY 2020 earnings
- 4 market experts’ opinions as US shares hit record and WiseTech share price soars 33%
- Why the WiseTech Global share price rocketed 37% higher today
- ASX 200 up 0.8%: ANZ to pay dividend, a2 Milk tumbles, CSL impresses
Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of WiseTech Global. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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