ASX tech shares could be the right place to find opportunities in January 2022.
There has been a lot of volatility over the last couple of months, with some businesses dropping (close) to multi-month lows.
High-quality businesses that are growing quickly with big margins could be very attractive for the long-term after a bit of a bump.
Keeping that in mind, here are two leading ideas:
Xero Limited (ASX: XRO)
Xero is a leading cloud accounting business with operations globally. It has a sizeable presence in several places including Australia, the UK, New Zealand, the USA, Singapore and South Africa. Canada is another country that Xero wants to build a large presence.
In terms of the profit margin, it isn’t making much of a net profit because the ASX tech share is prioritising the long-term by re-investing for growth.
However, Xero does have a very high gross profit margin – in the first half of FY22 that margin increased 1.4 percentage points to 87.1%. This means that most of the revenue falls to the earnings before interest, tax, depreciation and amortisation (EBITDA) line.
In terms of growth, Xero is rapidly growing operationally and this is coming through in the financial numbers.
Subscribers are growing, in HY22 the total subscribers rose 23% to 3.01 million. Australia had 1.24 million subscribers and the UK had 785,000 subscribers, being the two regions with the largest subscriber totals.
The subscriber growth is helping annualised monthly recurring revenue (AMRR) rise even faster, which saw 29% growth to NZ$1.13 billion. This was also helped by a 5% increase in the average revenue per user to NZ$31.32.
Xero has been making acquisitions to add significant product and talent capabilities to Xero, as well as new revenue streams and enter new categories. Three of the ASX tech share’s acquisitions have been Planday, Tickstar and Waddle.
The Xero share price is at a multi-month low.
Volpara Health Technologies Ltd (ASX: VHT)
Volpara Health is a healthcare business that offers a breast health platform. Its software can be integrated into various parts of clinics including risk analysis, decision making, administration and so on.
It has already built a large market position in the US through both organic growth and acquisitions such as CRA Health. Around 34% of US women who had a breast scan had a Volpara product applied on their images and data.
Volpara has an even higher gross profit margin than Xero. In the first six months of HY22 the margin was 91.4%. Revenue is also growing very quickly – there was an increase of 30% to NZ$12.3 million in the first six months of FY22 (it was a 38% increase in constant currency terms).
The ASX tech share is continually attracting accolades with certifications and peer-reviewed articles.
Volpara is working on expanding its electronic health record (EHR) sales channel as well as increasing its average revenue per user (ARPU).
Over the long-term, growth in its lung screening software could lead to this segment developing into a sizeable part of the business. It thinks the lung screening market in the US alone could be worth over US$400 million of annual recurring revenue (ARR).
In FY22, Volpara is expecting revenue to grow by over 25% to be more than NZ$25 million.
The Volpara share price is close to its 52-week low.
The post Are these 2 ASX tech shares good buys in January? appeared first on The Motley Fool Australia.
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More reading
- How did the S&P/ASX All Technologies Index (XTX) perform in 2021?
- ASX 200 tech shares on watch after Nasdaq selloff
- Here’s how the Xero (ASX:XRO) share price performed in 2021
- These ASX mining, tech, and bank shares could be buys in 2022
- 3 exciting small cap ASX shares rated as buys
Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended VOLPARA FPO NZ and Xero. The Motley Fool Australia owns and has recommended VOLPARA FPO NZ and 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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