The Austal Limited (ASX: ASB) share price is up 8.91% at the time of writing after updating its full year guidance today. The company reported that full year revenue would likely increase by $100 million to $2 billion. Accordingly, earnings before interest and taxes would increase by $15 million.

This, along with many other positive announcements, sets the company up for an explosive growth spurt.

An undervalued gem

The Austal share price plummeted earlier in the month after news that it had lost a major contract to a lower priced competitor. But I think the market has oversold this company significantly, creating a fantastic buying opportunity. 

In fact, on the same day that Austal announced its lost contract, it also announced an additional $324 million contract for the Royal Australian Navy. 

Its location is also noteworthy. Recently, I visited the US town where Austal’s US production facilities are located – Mobile, Alabama. It is hard to overstate the impact of the company there. The town of Mobile runs on the Austal operations. Aside from strategic and tactical military goals, US defence spending is designed to create jobs. In my opinion, there is no way Austal could have won any US defence work from an Australian manufacturing location – it just wouldn’t happen.

Why Austal shares are ready for explosive growth

Austal revealed an order book worth $4.3 billion in its FY20 H1 report. It has also announced considerable contract wins since that time. Over the past 5 years, the Austal share price has grown by about 12% per year on average. Its current price-to-earnings ratio is 14.9 (at the time of writing), and over the past 9 years its average P/E has been closer to 17.

This company is right in my sweet spot as an investor in manufacturing companies. It has already spent the money to build the infrastructure, has impressive relationships, and is built on a track record of honesty and quality products. I think Austal shares are likely to see explosive growth over the next 1–2 months. 

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Daryl Mather owns shares of Austal Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Austal Limited. 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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The Volpara Health Technologies Ltd (ASX: VHT) share price is edging higher today after reporting its full-year results for the year ended 31 March 2020.

Volpara is a New Zealand-based, small-cap ASX share that develops and sells software solutions. It facilitates the early detection of breast cancer by improving the quality of mammogram-based screening programs. 

What did Volpara announce?

For the 12 months to 31 March 2020, the company reported total revenue of NZ$12.6 million, up 153% from NZ$5 million in FY19. Within this, growth in subscription revenue continued its upward trajectory, up 106% on the prior corresponding period to NZ$9.1 million.

Volpara expects growth in subscription revenue to continue in FY21 as it pivots MRS Systems – a provider of breast clinic management software acquired in mid-2019 – away from a capital sales model to an almost solely software-as-a-service (SaaS) model. Additionally, the full end-to-end platform will be available for sales.

Despite an improvement in gross margins, which was up from 83% in FY19 to 86%, the company recorded a net loss for the year before tax of NZ$22.3 million. This compares to a loss of NZ$11.8 million in the prior year.

This was primarily the result of an increase in operating costs due to organic growth and the additional costs incurred after the MRS acquisition. Operating costs increased 110% from NZ$17.1 million in FY19 to NZ$36 million in FY20.

Nonetheless, as revenue continues to grow faster than operating expenses, the company improved its net margin from -235% in FY19 to -176% in the current period.

Given the uncertainty on business activity resulting from COVID-19, the company has undertaken various cost-saving initiatives. Volpara expects these initiatives will yield reductions of between 10% and 15% on annualised operating costs.

Looking to cash flow, Volpara increased its cash receipts from customers during the year by 193% to NZ$16.3 million. Its cash balance as at 31 March 2020 stood at NZ$31.4 million, which has now expanded to NZ$69 million following a recent capital raising. Importantly, the company remains debt-free.

Outlook and management commentary

Looking forward, the company recognises the world has changed with COVID-19 but highlights the critical nature of breast screening. 

Volpara will focus on long-term SaaS contracts which appear resilient despite COVID-19. Most of its contract are 5-year annual rolling contracts, paid annually in advance. The company noted that cash collection continues to be strong, with no obvious signs of any significant churn risks.

Commenting on the full-year results, CEO Dr Ralph Highnam said:

“FY2020 was an excellent year for Volpara. We successfully conducted our first acquisition, medical software company MRS Systems in the United States, and built an installed software base covering over 27% of US women screened for breast cancer.”

“Despite the current Coronavirus pandemic, we ended the year with our strongest Q4 to date and Annual Recurring Revenue (ARR) of over NZ$18M. This has set up the strong accounting revenue numbers we’re presenting today, showing very significant growth year-on-year,” he added.

At the time of writing, the Volpara share price is trading 0.35% higher for the day after being up by nearly 4% in morning trade.

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Motley Fool contributor Cathryn Goh owns shares of VOLPARA FPO NZ. The Motley Fool Australia owns shares of and has recommended VOLPARA FPO NZ. 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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The Nearmap Ltd (ASX: NEA) share price has been a strong performer over the last couple of months.

Since March 29, the aerial imagery technology and location data company’s shares have zoomed a remarkable 123% higher to $2.23.

Is it too late to buy Nearmap shares?

Despite Nearmap’s impressive gain over the last couple of months, it is worth noting that they are still trading almost 50% lower than their 52-week high of $4.29.

I believe this leaves the company’s shares trading at a very attractive level for a long term investment. Especially given its high quality software and the fragmented and lucrative market it operates in.

I’m not the only one that thinks that the Nearmap share price is in the buy zone. This morning analysts at Goldman Sachs retained their buy rating and lifted their price target on its shares to $2.55.

Why is Goldman Sachs bullish on Nearmap?

Goldman Sachs was pleased with Nearmap’s better than expected market update on Thursday and named three key reasons why its shares are a buy.

The first is its large and growing market. The broker notes that Nearmap estimates the market opportunity in its four countries of operation (Australia, New Zealand, United States, and Canada) to be worth $2.9 billion per year.

This means that the annualised contract value (ACV) that it expects to achieve in FY 2020 of $103 million to $107 million is just a ~3.6% share of its overall market. This gives it a significant runway for growth over the next decade.

Another reason it is positive on the company is the fragmented nature of the aerial imagery market. Goldman believes this gives providers such as Nearmap an opportunity “to scale across a broad range of industry segments (i.e. such as architecture, insurance, government, utilities, solar panel providers).”

A third reason is the company’s technology. The broker believes it is very competitive versus its domestic and global peers. It notes that its strengths include high quality image capture and market leading frequency of capture. It also notes that a substantial investment has been made to provide oblique and 3D imagery and artificial intelligence/machine learning driven analytical capability at scale.

Combined, the broker believes Nearmap is capable of growing its ACV by a compound annual growth rate of 18% between FY 2019 and FY 2022.

I think Goldman is spot on with its buy rating, but is potentially being a little conservative with its estimates. I expect the company to deliver on its target of at least 20% growth over the period.

Overall, I think Nearmap is a great buy and hold option along with the likes of Altium Limited (ASX: ALU) and Appen Ltd (ASX: APX).

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Nearmap Ltd. The Motley Fool Australia owns shares of Altium and Appen Ltd. 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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