Category: Stock Market

If you have room to add a growth share or two to your portfolio, then I think the three listed below could be worth considering.

I believe all three have earnings on upwards trajectories and could provide investors with strong returns over the next decade. Here’s why I would invest $3,000 into them:

a2 Milk Company Ltd (ASX: A2M)

The first growth share I would suggest investors consider buying is this fresh milk and infant formula company. It has consistently grown its earnings at a very strong rate over the last few years thanks to increasing demand for its infant formula in China. The good news is that although it is generating material sales in the key market, it still only has a relatively small market share. I believe this gives it a long runway for growth over the coming years.

Aristocrat Leisure Limited (ASX: ALL)

It has been a difficult few months for Aristocrat Leisure because of casino closures during the pandemic. However, with casinos around the world slowly reopening, demand for its industry-leading pokie machines looks set to rebound again. Combined with its fast-growing digital business, which is has been thriving during lockdown, I believe the future is very bright for this gaming technology company.

Nanosonics Ltd (ASX: NAN)

Another growth share to consider buying is Nanosonics. It is the infection control specialist behind the industry-leading trophon EPR disinfection system for ultrasound probes. The system has been growing its market share at a rapid rate in recent years, but has still only captured a relatively modest amount of it. In light of this, I expect the company to continue to grow its market share in the coming years, underpinning strong earnings growth. This should be supported by the launch of several potentially lucrative new products.

More reading

• 3 timeless investing lessons from 2020 (so far!)
• 2 ASX shares to buy with $5000 today
• Why didn’t Warren Buffett buy more shares in the recent bear market?
• Where to invest $5,000 in ASX growth shares today
• 3 ASX 200 shares to watch this week

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 Nanosonics Limited. The Motley Fool Australia owns shares of A2 Milk. The Motley Fool Australia has recommended Nanosonics Limited. 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 Australian share market is home to a number of high-quality blue chip shares.

However, with so many for investors to choose from, it can be difficult to decide which ones to buy.

To narrow things down, I’ve picked out three blue chip shares which I think are great options for investors right now. They are as follows:

Coles Group Ltd (ASX: COL)

The first blue chip to consider buying is Coles. I think it could be great long term option due to its solid growth potential thanks to its defensive earnings, expansion opportunities, and its refreshed strategy. In respect to the latter, the Smarter Selling pillar of its strategy is aiming to deliver $1 billion in cumulative savings by FY 2023. This will be through initiatives including the use of technology to automate manual tasks and simplifying above-store roles to remove duplication.

CSL Limited (ASX: CSL)

Another blue chip share to buy is CSL. I believe the global biotherapeutics giant is one of Australia’s highest quality companies and a great buy and hold option. This is due to the strength and growth potential of its CSL Behring and Seqirus businesses. I believe CSL’s Behring business in particular is well-placed for growth thanks to increasing demand for immunoglobulins, its growing plasma collection network, and burgeoning research and development pipeline. 

Telstra Corporation Ltd (ASX: TLS)

A final blue chip share to consider buying is Telstra. I like the telco giant due to its attractive valuation and the solid progress it is making with its T22 strategy. This strategy is creating a much leaner operation and one which I believe could return to growth in the coming years. Especially given the improving trading conditions in the telco industry and the arrival of 5G internet. The latter could give Telstra’s mobile revenues a major boost in the next few years.

More reading

• 3 top ASX dividend shares to buy in June
• How to pick better shares and earn better returns
• The ASX 200 just hit an 11-week high. Here are 3 reasons we might be in overvalued territory
• What ASX investors can do before 30 June to save tax
• CSL shares have underperformed the ASX 200 over the past month. What’s going on?

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 CSL Ltd. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia owns shares of COLESGROUP DEF SET. 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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One of the best performing areas of the market today has been the banking sector.

The big four banks have all recorded strong gains today and are powering the S&P/ASX 200 Index (ASX: XJO) notably higher.

What’s happening in the banking sector today?

Here’s a snapshot of what is happening in the banking sector this afternoon:

• The Australia and New Zealand Banking GrpLtd (ASX: ANZ) shares price is currently up 4.75% to $16.33.
• The Commonwealth Bank of Australia (ASX: CBA) share price is up 1.5% to $59.89.
• The National Australia Bank Ltd. (ASX: NAB) share price has pushed 4% higher to $16.38
• The Westpac Banking Corp (ASX: WBC) share price is the best performer with a 5% gain to $16.10.

Why are the big four banks charging higher today?

With no news out of any of the banks or broker notes that I’m aware of, today’s strong gains are a little bit of a mystery.

However, I suspect that investors are buying the big four banks on the belief that they have been oversold during the pandemic.

Australia will undoubtedly suffer economically from the pandemic, but the surprisingly low infection rate and the rapid reopening of the country appears to have caught even the most positive economists by surprise.

Combined with the Federal Government’s stimulus packages and the Reserve Bank’s rate cuts, Australia’s economic future doesn’t look anywhere near as bleak as other countries.

This could ultimately mean that the big four banks have overestimated the provisions they have announced over the last few weeks. Especially if a successful vaccine is developed sooner rather than later.

What provisions have the banks made?

As a reminder, National Australia Bank was the first bank to announce provisions. On 27 April it revealed an $807 million top-up to its economic adjustment to reflect potential COVID-19 impacts.

This was followed the next day by Westpac, which announced approximately $1.6 billion of additional impairment charges predominantly related to COVID-19 impacts.

Within two days, with its interim results, ANZ Bank announced COVID-19 impacts of $1.031 billion.

And the last bank to move, was the Commonwealth Bank. Earlier this month Australia’s largest bank made an additional credit provision of $1.5 billion for the potential longer term impacts of COVID-19.

If things go better than expected, these provisions could be partially reversed. Which would be a big boost to their future dividends.

Should you buy the banks?

Even after their strong gains this week, I still see a lot of value in the big four banks and would be a buyer of all of them at these levels.

Though, my preference remains Commonwealth Bank due to its overall quality.

More reading

• The ASX 200 just hit an 11-week high. Here are 3 reasons we might be in overvalued territory
• ASX 200 up 1.8%: Big four banks jump higher, Flight Centre and Webjet rocket again
• Where will the NAB share price be in 1 year?
• Is the ANZ share price a buy?
• Why I would buy CBA and these ASX dividend shares

Motley Fool contributor James Mickleboro owns shares of Westpac Banking. 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.

The post Why ANZ, CBA, NAB, and Westpac shares are storming higher today appeared first on Motley Fool Australia.

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Is the Webjet Limited (ASX: WEB) share price a buy? It has been an amazing performer recently.

In just one month the Webjet share price has risen by 94%. There have been other shares that have recovered strongly from the coronavirus lows like Afterpay Ltd (ASX: APT), but Webjet is one of the ones that are cut off from almost all of the customer base.

When Webjet did the capital raising it was planning for the eventuality of needing to survive until around the New Year without any material revenue. It doesn’t seem that dire now. 

But things seem to be getting back to normal quicker than expected. Travel within each Australian state is being encouraged. There’s plans for travel across the entire country. There will hopefully be a travel link with New Zealand sooner rather than later. Things are looking up. 

Does the Webjet share price represent good value?

It was only two weeks ago when I said that the Webjet share price was cheap at a share price of $3.24. Since then it has risen around 35%.

Between now and then I said it might be wise to take some profit off the table. I’m even more of that belief now. Remember that there are a lot more Webjet shares on issue that there used to be, so future earnings will be shared with more shares.

At the moment there still isn’t much travel going on. The coronavirus seems as though it’s going to be around in the world for some time, so international travel could be very limited until 2021.

In 2030 I think we’ll be looking at a much higher Webjet share price. But I worry that today’s share price may be too optimistic. All of the coronavirus impacts are still to play out. Retirees may be less willing to leave their respective countries right now. Earnings may not bounce back as much in the near term as expected with this share price.

More reading

• The ASX 200 just hit an 11-week high. Here are 3 reasons we might be in overvalued territory
• ASX 200 up 1.8%: Big four banks jump higher, Flight Centre and Webjet rocket again
• Why Cann, IAG, Monadelphous, & Webjet shares are storming higher
• Is it too early to buy Webjet shares?
• ASX 200 jumped higher, rises more than 2%

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There’s no stopping the bulls! The ASX surged to a two-and-a-half month high in after lunch trade despite brewing geopolitical tensions threatening to overtake the COVID-19 pandemic as a major source of contention.

The S&P/ASX 200 Index (Index:^AXJO) jumped 2.4% to 5,753 at the time of writing. If it finishes at this level, it would mark it highest close since March 10.

Warnings of overstretched valuations and trade protectionism between China and the US and its allies can’t stop our market from entering into bull territory.

If you missed the big 25% bounce from the bear market low in March, it might not be too late to join the party as brokers have only just upgraded these ASX shares to “buy”.

Turning point

The first is Smartgroup Corporation Ltd (ASX: SIQ). Shares in the novated leasing group jumped 9.3% to $6.40 at the time of writing after Morgans upgraded the stock to “add” from “hold”.

Positive news from industry peer Eclipx Group Ltd (ASX: ECX) and anecdotal signs of a recovery in the automotive sector gave the broker enough reason to lift its recommendation on Smartgroup.

“The clearest data point has been from ECX, which recently reported novated lease orders (as at mid-May) were down ~35% on pre-Covid levels, having recovered from down ~60% in April,” said Morgans.

“Historically, SIQ’s novated volumes have been less volatile given a higher skew to Government and Health sectors.

“In addition, ECX has shown a very strong week to week recovery in its fleet end of lease car sales (recovered to within 4% of pre-Covid levels).”

The broker’s price target on Smartgroup is $6.95 a share.

Dropping into the “buy” zone

Another stock racing higher today is the Insurance Australia Group Ltd (ASX: IAG) share price. Shares in the insurer jumped 3.2% to $5.80 as IAG became the latest stock to be added to Credit Suisse’s buy list.

The broker upgraded its rating on IAG to “outperform” from “neutral” after its shares lagged the market by around 14% over the past two months.

The sell-off could be overdone. Not only are the earnings risk priced into the stock, but increases on insurance premiums and very low (sometimes negative) bond yields could trigger a rebound.

“We previously considered IAG a defensive stock in the current environment but struggled with valuation,” said the broker.

“Post a recent share price pullback and the stock trading at a 10% PE discount to the market, from 0-20% premium in recent years, we now consider IAG at an attractive entry price.”

Credit Suisse’s price target on IAG is $6.40 a share.

More reading

• Why these 3 ASX 200 tech shares offer great value
• Up over 100% in 2 months. Are Nearmap shares still a buy at current prices?
• Leading brokers name 3 ASX 200 shares to sell today
• The ASX 200 just hit an 11-week high. Here are 3 reasons we might be in overvalued territory
• What ASX investors can do before 30 June to save tax

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. 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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It is another positive trading day for the S&P/ASX 200 Index (ASX: XJO), up by 1.8% at the time of writing. This follows yesterday’s strong share price gains across the board.

Australia’s technology sector performed particularly strongly with few tech shares in the red today. This is likely driven by hopes the Australian economy can return to normal quicker than anticipated.

Here we examine three ASX tech shares which have performed particularly strongly so far today: Bigtincan Holdings Ltd (ASX: BTH), Audinate Group Limited (ASX: AD8) and Wisr Ltd (ASX: WZR).

Bigtincan

Bigtincan operates in the fast-growing sales enablement niche within the IT software market. Bigtincan provides organisations and their sales teams with a platform to access and collaborate on content and improve customer engagement.

It also leverages artificial intelligence through features which enable users to personalise and recommend content. Its core offering is accessible to users on a range of desktop and mobile platforms through devices like iPads.

Bigtincan’s was caught up in the wider market selloff on the ASX over the past few months, triggered by the coronavirus crisis. Its share price declined from $1.02 in mid – February to $0.265 in mid – March, a massive 73% decline. Since then, its share price has recovered a large part of that loss and is up another 6% today to currently trade at $0.795.

Audinate

Audinate’s uses its audio networking solutions in the production of a range of professional audio equipment. Its core networking solutions improve audio quality using ethernet or fibre optic cables. This ultimately reduces the need for extra cabling and installation.

A recent market update showed that Audinate believes it is in a relatively strong position to navigate through current economic challenges. This is supported by a very healthy $30.9 million cash on hand and is underpinned by a strong balance sheet. This shows the ability to deliver solid revenue growth in the March quarter.

Like Bigtincan, Audinate has seen a strong bounce back in its share price since mid-March. This rally in its share price continued further today with a strong 10.6% gain at the time of writing.

Wisr

Online fintech lender, Wisr has also seen a rally in its share price since mid-March. Wisr is up another 8% today, although its market rally is not as strong as either Bigtincan’s or Audinate’s. Its current share price of $0.162 is still 49% below its February high of $0.315.

Wisr’s loans are used for a range of purposes such as debt consolidation, buying a vehicle, home renovations, wedding and travel. With discretionary spending dramatically reduced during the coronavirus, it’s not surprising its share price has been hit hard in recent months. However, renewed optimism in the Australian economy has helped to drive its share price higher today.

More reading

• 3 stellar ASX tech shares to buy and hold for decades
• Got $10,000 to invest? I would buy these ASX shares right now
• Why Aristocrat Leisure, Bigtincan, Clover, & Megaport shares are dropping lower
• 3 small cap ASX tech shares that could be stars of the future
• These small cap ASX shares could be stars of the future

Motley Fool contributor Phil Harpur has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended AUDINATEGL FPO and BIGTINCAN FPO. 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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ASX 200 tech shares have offered great returns to shareholders over recent years. This comes as the marketplace moves from brick-and-mortar businesses to online, and more and more people are using technology in almost every area of life. Technology companies are often known for their ability to deliver huge earnings growth, something that companies in other sectors cannot always provide.

While the S&P/ASX 200 Index (ASX: XJO) is down 19.69% from highs reached in February, the S&P/ASX Information Technology Index (ASX: XIJ) is down just 5.67% in the same period. The newcomer, S&P/ASX All Technology Index (ASX: XTX), is down 2.17% since it launched in late February. This reflects the positive market sentiment towards technology companies and their ability to continue their growth during difficult economic times.

Technology companies often rely on changing consumer trends to drive their growth. Frequently, as a technology gains traction it has a rapid uptake by consumers and can quickly achieve huge market penetration. These technology shares have proven their capabilities and made it into the index of Australia’s biggest 200 companies. They also offer great value to shareholders.

Afterpay Ltd (ASX: APT)

Afterpay is a financial technology company offering payment solutions to consumers. It operates in the United States, the UK, Australia and New Zealand. Afterpay recently hit new highs as it announced that it had reached 5 million US customers, a proud boast for any Australian company. This takes the total customers signed onto Afterpay’s platform to nearly 9 million worldwide. The company has an average transaction value of $150. This suggests that there is plenty of room for Afterpay to derive profits from transactions. Its net margin from payments sits at around 2.1% (this is the amount Afterpay derives from its transactions after paying the costs of those transactions).

While Afterpay is currently turning a loss, this is not abnormal for a technology company in its growth phase. Currently, customer growth is soaring. For the first half of financial year 2020, customer growth was up 134% compared to the first half of 2019. Underlying sales were up a massive 109%.

In Q3 of the 2020 financial year, however, Afterpay processed $2.4 billion in sales for merchants. This was a massive 354% increase over the same period in 2019. Its payment platform is now offered or in the process of being offered by more than 15,000 brands and retailers. If Afterpay can continue to grow at this rate, it will soon be a well-established international market leader in consumer financing.

Altium Limited (ASX: ALU)

Altium is a software company that provides solutions for engineers in circuit board design. Demand for Altium’s cloud-based design software is growing rapidly. The company boasts that its software allows engineers to work from anywhere and connect to anyone.

Altium is fast becoming a market leader in engineering software and has a solid balance sheet with healthy cashflow. The company previously announced that it expects earnings of around US$200 million in financial year 2020. It has since stated that weakness in the final quarter of the financial year will partly reduce expectations.

Altium also announced that it is moving toward high volume online sales, which will support revenue. It is also offering lower pricing and extended payment terms to customers during the current economic downturn. The company aims to attract 100,000 subscribers by 2025, which will provide revenue of an estimated US$500 million. In FY19, revenue was US$171.8 million and the company paid a dividend of 34 Australian cents.

Xero Limited (ASX: XRO)         

Xero is a New Zealand-based software company listed on the ASX. It provides cloud computing accounting software for small to medium size businesses. As at 31 March 2020, the company had 2.285 million subscribers with a life time value of $2,422 per subscriber. This equates to a total of $5.53 billion for current subscribers. Additionally, the company’s subscriber base is growing quickly with an increase of 467,000 during the 2020 financial year. Xero is working hard to increase the revenue earned from customers. In the 2020 financial year, it saw a 27% increase in the lifetime value of subscribers.

The company earns a gross margin of 85.2% from customers. This means that a massive 85.2% of the company’s revenue forms its gross profit. In the 2020 financial year, Xero then invested a significant amount in marketing, product development and paid administration expenses. It earned a net profit after tax of $3.3 million. This was the first time the company posted a full year net profit and reflects the growth of the company.

These numbers are just the beginning, with Xero boasting in its annual report that it has the opportunity to reach the entire global small business community.

More reading

• 3 timeless investing lessons from 2020 (so far!)
• Up over 100% in 2 months. Are Nearmap shares still a buy at current prices?
• How to pick better shares and earn better returns
• 4 reasons the Afterpay share price just hit $50
• Leading brokers name 3 ASX 200 shares to sell today

Motley Fool contributor Chris Chitty has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Xero. The Motley Fool Australia owns shares of AFTERPAY T FPO and Altium. 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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If you’re looking to add some dividend shares to your portfolio in June, then the three listed below could be great options.

Here’s why I think they are among the best on offer right now:

BWP Trust (ASX: BWP)

BWP is a real estate investment trust that invests in and manages commercial assets. These assets tend to be large format retail properties, which are predominantly leased to home improvement giant, Bunnings Warehouse. At the end of the first half of FY 2020, its weighted average lease expiry (WALE) stood at 4.3 years. While this isn’t the longest WALE you’ll find on the ASX, I don’t think there is any real danger of Bunnings packing up and moving to other properties. This is because Bunnings is owned by Wesfarmers Ltd (ASX: WES), which also own a ~23.6% stake in BWP. In light of this, I expect modest and predictable rental income growth over the next decade. Based on this, I estimate that its units offer a forward 5% yield.

Dicker Data Ltd (ASX: DDR)

Another dividend share to consider buying in June is Dicker Data. It is a wholesale distributor of computer hardware and software which has consistently grown its earnings and dividends at a solid rate for many years now. The good news is that this positive trend has continued in 2020 despite the pandemic. The company recently released a first quarter update which revealed very strong profit growth. As a result, management advised that it plans to lift its full year dividend by 31% to 35.5 cents per share. This represents a 4.55% fully franked dividend yield.

Telstra Corporation Ltd (ASX: TLS)

A third option to consider buying in June is Telstra. I think the telco giant’s shares are very attractively priced at present for a patient investment. Especially as I believe Telstra is well-positioned for a return to growth in the coming years thanks to the T22 strategy and the easing of the NBN headwind. In the meantime, as I covered  here, I believe its dividend is sustainable at 16 cents per share for the foreseeable future. This equates to a fully franked 5% dividend yield.

More reading

• Leading brokers name 3 ASX 200 shares to sell today
• The ASX 200 just hit an 11-week high. Here are 3 reasons we might be in overvalued territory
• What ASX investors can do before 30 June to save tax
• Leading brokers name 3 ASX 200 shares to buy right now
• ASX 200 up 1.7%: Flight Centre and Webjet rocket, Afterpay hits record high

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Dicker Data Limited and Telstra Limited. The Motley Fool Australia owns shares of Wesfarmers Limited. 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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It is hard to believe that we are only halfway through 2020! The year has been such a rollercoaster that historians are probably racing to write the first books about it. There are certainly enough investing lessons we can take from the last 6 months to fill a book. In fact, I think there are 3 timeless investing lessons that are worth highlighting.

1. Always prepare for the unexpected

There have been plenty of ‘oh crap’ moments so far this year. Not only did we get hit by plunging share markets, negative oil prices, job losses and social isolation, but we faced a run on the one thing we rely on even more than a good hug; toilet paper. Talk about being caught short!

It goes to show how hard it is to forecast low probability events. As investors, we need to stay vigilant and stay ready. Preparing for the unexpected can be as simple as having a diversified portfolio, keeping debt under control and considering how exposed your wealth would be to an unexpected shock.

2. The benefits of automating investing

It hurts when we lose money. It’s often said that we feel the pain of a loss twice as much as the joy of an equivalent gain. So when the market plummeted in March, a natural reaction would be to sell everything and hide under the bed.

The investing lesson here is that by systematically buying shares throughout, even as share prices tumbled, investors could have dodged the pitfalls of emotional investing and scooped up beaten-down shares like Afterpay Ltd (ASX: APT) and Nearmap Ltd (ASX: NEA) at bargain prices.

3. Find companies that can endure

Some of the best-performing companies of the last six months are those with the capacity to endure. These are companies that had strong balance sheets, robust demand and wide economic moats. An example is A2 Milk Company Ltd (ASX: A2M) which seized the opportunity to deploy some of its huge cash pile and increase its stake in key supplier Synlait Milk Ltd (ASX: SM1).

We’ll come back stronger

I think we have all been tested on our capacity to endure so far in 2020. By reflecting on these experiences and understanding the investing lessons, we can grow and come back stronger in the years ahead.

More reading

• Why these 3 ASX 200 tech shares offer great value
• Up over 100% in 2 months. Are Nearmap shares still a buy at current prices?
• 4 reasons the Afterpay share price just hit $50
• Leading brokers name 3 ASX 200 shares to sell today
• The ASX 200 just hit an 11-week high. Here are 3 reasons we might be in overvalued territory

Motley Fool contributor Regan Pearson owns shares of A2 Milk.

You can follow him on Twitter @Regan_Invests.

The Motley Fool Australia owns shares of and has recommended Nearmap Ltd. The Motley Fool Australia owns shares of A2 Milk and AFTERPAY T FPO. 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 S&P/ASX 200 Index (ASX: XJO) is up around 25% from its March lows. Nearmap Ltd (ASX: NEA), however has far outpaced the index, increasing by more than 125% over the same period. So are Nearmap shares still a buy at their current price?

Nearmap at a glance

Nearmap is an aerial imagery company which uses a subscription as a service model. It provides imagery which is much higher in resolution than satellite imagery and shows changes over time. It has a multi-year advantage over its closest competitors with a profitable Australia and New Zealand (ANZ) segment as well as a fast growing North America (NA) segment. The NA segment also includes Nearmap’s newest market addition, Canada.

Supplementing the imagery, Nearmap’s software provides a range of product features including orthogonal (2D) imagery, oblique cardinal direction imagery and 3D online and AI content. Its customer base is diverse, as shown below, with the product’s primary appeal being the cost and time savings delivered through reduced reliance on site visits.

Data Source: Nearmap 1H FY20 analyst pack. Chart by author.

The market opportunity

Nearmap has a number of leavers to pull for growth. By expanding into new markets, growing its average revenue per subscription (ARPS), increasing gross margins and of course by growing its number of subscriptions. It appears there is a huge runaway potential.

The growth Nearmap is experiencing in its NA segment has accelerated past that of its more mature ANZ market. The NA portfolio offers a denser and larger market with an ARPS around double that of ANZ. However, the NA segment is not yet profitable since the company is still investing strongly there for future growth. Consequently, this means the company’s current gross margin is only 17% for its NA segment. Compare this to the ANZ segment which delivered a gross margin of 88% for 1H20.

Nearmap’s share price now

Nearmap’s share price began dropping lower mid last year and was also heavily sold off prior to the market crash after updating its guidance. In addition, along with most growth shares, it was again significantly sold off during the coronavirus-led market crash. This left it sitting almost 80% lower within 12 months. Putting the recent 125% rise in perspective, it would still need to gain 120% to reach last year’s high. 

With so many events contributing to Nearmap’s share price decline, its tough to decipher just how much of this fall has been justified. Pleasingly, the current trading conditions appear not to be materially impacting Nearmap. The company is also continuing to invest in growth initiatives. 

In addition to annual contract value growth and segment performance, I will be looking to see a reduction in churn when Nearmap next updates the market. This has historically been low but recently doubled after the company lost a couple of significant customers in the autonomous vehicle industry. Nearmap has noted, however, potential future upside as the industry recovers.

Foolish takeaway

I like Nearmap shares and have been an owner for a number of years, holding through the crazy ride it has been of late. I believe in the company’s future and can see Nearmap’s NA segment following the same path its profitable ANZ segment took. Not to mention the potential for continued global growth Nearmap has cited. Think Singapore, the UK, Asia and Europe. Who knows where this ASX 200 tech could be in 5 or 10 years. I would be happy being a buyer today, provided you have the stomach to hold on and find out.

More reading

• Why these 3 ASX 200 tech shares offer great value
• 3 timeless investing lessons from 2020 (so far!)
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Motley Fool contributor Michael Tonon owns shares of Nearmap Ltd. The Motley Fool Australia owns shares of and has recommended Nearmap 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.

The post Up over 100% in 2 months. Are Nearmap shares still a buy at current prices? appeared first on Motley Fool Australia.

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