This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Amazon.com, Inc.‘s (NASDAQ: AMZN) stock has rallied over 70% this year, making it the hottest stock in the FAANG cohort, which also includes Facebook, Inc. (NASDAQ: FB), Apple Inc. (NASDAQ: AAPL), Netflix Inc (NASDAQ: NFLX), and Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL).

Wall Street also remains overwhelmingly bullish on Amazon, with an average price target of more than $3,700 per share — which is nearly 20% above its current price. Let’s see why analysts still love Amazon, even after its valuation hit $1.6 trillion, and why its stock could still have room to run.

Amazon Web Services

Amazon’s cloud unit AWS (Amazon Web Services) grew its revenue 31% year-over-year to $21 billion, or 13% of Amazon’s top line, in the first half of 2020. That revenue growth was already robust, but AWS’s operating profit surged 48% to $6.4 billion and accounted for 65% of Amazon’s operating income.

That growth is impressive for two reasons. First, AWS is already the world’s top cloud infrastructure platform with a 31% market share in the second quarter of 2020, according to Canalys, and its continued growth keeps it ahead of competitors like Microsoft Corporation‘s (NASDAQ: MSFT) Azure, Alphabet’s Google Cloud, and Alibaba Group Holding Ltd (NYSE: BABA) Cloud.

Second, most of AWS’ competitors aren’t profitable. Alibaba operates its cloud business at a loss, while many analysts believe Microsoft and Google, which don’t disclose their cloud profits, are likely taking losses. AWS can consistently generate profits because it has a first-mover’s advantage and superior scale.

AWS already serves massive customers like Facebook, Netflix, Twitter Inc (NYSE: TWTR), Walt Disney Co (NYSE: DIS), and multiple government agencies. That well-established customer base and its expanding ecosystem should ensure AWS remains Amazon’s core profit engine for the foreseeable future.

Amazon Prime

Amazon subsidizes the growth of its lower-margin North American unit and its unprofitable international unit with AWS’ profits. That’s the opposite of Alibaba’s business model, which subsidizes the growth of its unprofitable cloud business with its higher-margin core commerce revenue.

AWS’ profits enable Amazon to consistently sell its products at low prices while expanding its ecosystem with brick-and-mortar stores (including Whole Foods and Amazon Go), streaming media platforms, and cheap hardware devices. All those efforts strengthen Amazon Prime, which surpassed 150 million paid members globally at the end of 2019.

Amazon Prime’s discounts, free shipping options, digital services, and other perks lock shoppers into its e-commerce ecosystem and prevent them from buying products from rival retailers. Therefore, Prime’s growth buoys the long-term expansion of Amazon’s online marketplaces, which still generate the lion’s share of its revenue.

The pandemic is generating tailwinds instead of headwinds

Amazon’s cloud and e-commerce businesses were already flourishing before the pandemic, but the crisis lit a fire under both businesses.

As more people stayed at home and worked remotely and accessed more online services, demand for AWS’ services climbed across multiple industries. As brick-and-mortar stores shut down, shoppers bought more products from Amazon’s e-commerce marketplaces.

Amazon initially warned that COVID-19 expenses would curb its earnings growth in the second quarter. But its revenue still rose 34% year over year in the first half of 2020, compared to 20% growth in 2019, and that accelerating revenue growth offset its higher expenses. As a result, Amazon’s net income still grew by 26% as its earnings per share (EPS) rose 24%.

Amazon expects its revenue to rise 24%-33% year-over-year in the third quarter. Analysts expect its revenue and earnings to rise 32% and 38%, respectively, for the full year. Those rosy estimates indicate Amazon remains a solid investment for both pandemic-stricken and post-pandemic markets.

It’s still reasonably valued

Amazon trades at 58 times forward earnings. That valuation might seem frothy relative to other retailers, but it’s a bargain compared to other high-growth cloud companies.

Moreover, Amazon’s dominance of the cloud and e-commerce markets, the resilience of those businesses throughout the pandemic, and the ongoing expansion of its ecosystem all justify that slight premium. That’s why Amazon will likely remain a top stock to own for long-term investors.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

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• Amazon Earnings: What to Watch on Thursday, Oct. 29
• 3 ASX tech shares that pay dividends
• Is Apple (NASDAQ:AAPL) stock overvalued?
• Why the Buddy (ASX:BUD) share price is up today

Leo Sun owns shares of Amazon, Apple, Facebook, and Walt Disney. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alibaba Group Holding Ltd., Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Facebook, Microsoft, Netflix, Twitter, and Walt Disney and recommends the following options: long January 2021 $60 calls on Walt Disney, long January 2022 $1920 calls on Amazon, short January 2021 $115 calls on Microsoft, long January 2021 $85 calls on Microsoft, and short January 2022 $1940 calls on Amazon. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Facebook, Netflix, and Walt Disney. 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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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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At lunch on Monday the S&P/ASX 200 Index (ASX: XJO) has followed the lead of international markets and is pushing higher. The benchmark index is currently up 0.3% to 6,185.5 points.

Here’s what has been happening on the market today:

Westpac cash earnings update.

The Westpac Banking Corp (ASX: WBC) share price is trading slightly higher today despite announcing a number of notable items that will impact its cash earnings. This includes new items of $816 million after tax, combined with the previously announced additional $404 million provision after tax for AUSTRAC matters. Included in the new items are $568 million of write-down of goodwill and intangibles associated with Westpac Life Insurance Services and Auto Finance businesses, along with a write-down of capitalised software.

Coca-Cola Amatil jumps on takeover approach.

The Coca-Cola Amatil Ltd (ASX: CCL) share price has surged higher today after confirming that it has received a takeover approach from Coca-Cola European Partners. According to the release, the largest independent bottler of soft drinks has offered $12.75 cash per share to acquire the company. This values Coca-Cola Amatil at approximately $9.282 billion and represents an 18.6% premium to its last close price. The company advised that a committee has reviewed the proposal and believes it is in the best interests of shareholders to grant due diligence to Coca-Cola European Partners.

Link receives another takeover offer.

The Link Administration Holdings Ltd (ASX: LNK) share price is pushing higher on Monday after a consortium comprising Pacific Equity Partners, Carlyle Group, and their affiliates returned with an improved takeover offer. The consortium is now offering $5.40 cash per share to Link shareholders, up from $5.20 cash per share. The latter offer was rejected last week by the board for “materially” undervaluing the company.

Best and worst ASX 200 performers.

The best performer on the ASX 200 on Monday by some distance has been the Coca-Cola Amatil share price with a 15% gain. This follows the receipt of the aforementioned takeover approach from Coca-Cola European Partners. The worst performer has been the Resolute Mining Limited (ASX: RSG) share price with a 3% decline. The gold miner’s shares have come under pressure since the release of an underwhelming quarterly update last week.

More reading

• Why Coca-Cola Amatil, CSR, Link, & Qantas shares are storming higher
• 5 major ASX 200 events this week
• The Magellan (ASX:MFG) share price fell 4% last week. Here’s why.
• What zero COVID-19 cases in Victoria means for ASX 200 shares
• AMP (ASX:AMP) asset sales part of wealth sector transformation

James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Link Administration Holdings Ltd. The Motley Fool Australia has recommended Link Administration Holdings 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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I think that the A2 Milk Company Ltd (ASX: A2M) share price is a strong buy due to the current short-term issues facing the sector.

What’s going on?

COVID-19 is causing huge disruption to many sectors. Infant formula is no exception.

In the initial months of COVID-19, there was huge buying of food products by consumers to make sure that they had enough to last through the lockdowns.

Infant formula businesses like A2 Milk and Bubs Australia Ltd (ASX: BUB) saw large growth of sales in March 2020. But since then there has been a bit of difficulty.

A2 Milk previously said it was expecting some moderation of economic activity in FY21, which could have various impacts, including on participants within the supply chains.

Firstly, there is the pantry de-stocking effect. Households need to get through what they previously bought before they will resume normal buying patterns.

There are also lower than anticipated sales to retail daigous in Australia because of reduced tourism from China and international student numbers. There is also disruption to the corporate daigou and reseller channel, particularly because of the stage 4 lockdowns in Melbourne.

A2 Milk said that because of all of the above, the daigou channel has contracted beyond previous expectations and there hasn’t been the replenishment orders the company is expected.

All of this is expected to cause A2 Milk revenue in the first half of FY21 to drop by 4% to 10% to $725 million to $775 million.

Why I think the A2 Milk share price is a buy

I firmly believe these conditions are shorter-term that will pass. It’s hard to say exactly when things will turn around. The COVID-19 situation is very unpredictable because of the healthcare issues. Australia may be in a good COVID-19 position, but many countries aren’t and that’s largely why the borders are still shut.

But I’m sure there are still large numbers of Asian consumers that want to buy A2 Milk products. It’s just that it’s harder for them to get a hold of products due to COVID-19.

To get around that, A2 Milk is rapidly building its Chinese-based business and it continues to increase its distribution in the country to more mother and baby (MAB) stores.

A2 Milk itself said that it’s of the view that this is a short-term impact to the daigou channel and it will prove to be temporary, assuming the COVID-19 situation remains stable.

That’s why A2 Milk is expecting total FY21 revenue to be between $1.8 billion and $1.9 billion, which would be growth of 4% to 10% if that eventuates.

A2 Milk can sell its products through several different channels. Its US liquid milk business is growing really strongly.

I think the North American side of the business looks really exciting for the long-term. It’s already doing well in the USA and it is just starting to grow into Canada as well.

A2 Milk is still expecting the earnings before interest, tax, depreciation and amortisation (EBITDA) margin to be “in the order of 31%”.

Foolish takeaway

At the current A2 Milk share price it’s priced at 23x FY23’s estimated earnings. I think the short-term weakness – down 26% in three months – represents a really good opportunity to buy shares of a business that has a strong brand with good growth potential and a robust balance sheet.

It’s true that the business is suffering from short-term issues, but I see it as a long-term opportunity. To me, it offers much better value than other popular ASX tech growth shares. I think it is worth buying today. Others in the sector like Bubs or even Clover Corporation Limited (ASX: CLV) could also be worth considering.

More reading

• Got $1,000? You should buy one of these 8 ASX shares
• 3 sublime ASX growth shares to buy this month
• Why it makes sense to invest in ASX shares
• Invest your Suncorp dividends in these ASX shares today
• 3 ASX shares to hold forever

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Clover Limited. The Motley Fool Australia owns shares of and has recommended A2 Milk and BUBS AUST 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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In morning trade the S&P/ASX 200 Index (ASX: XJO) is on course to start the week in a positive fashion. At the time of writing, the benchmark index is up 0.4% to 6,190.1 points.

Four shares that are climbing more than most today are listed below. Here’s why they are storming higher:

Coca-Cola Amatil Ltd (ASX: CCL)

The Coca-Cola Amatil share price has jumped 15% to $12.37 after receiving a takeover approach from Coca-Cola European Partners. The largest independent bottler of soft drinks has tabled an offer of $12.75 cash per share. This values the company at approximately $9,282 million and represents an 18.6% premium to its last close price. A committee has reviewed the proposal and believes it is in the best interests of shareholders that Coca-Cola European Partners be granted due diligence.

CSR Limited (ASX: CSR)

The CSR share price is up 3.5% to $4.75. Investors have been buying the building products company’s shares after they were upgraded by analysts at Credit Suisse. According to the note, the broker has put an outperform rating and $5.30 price target on CSR’s shares. It believes industry data is pointing to big improvements in non-residential construction.

Link Administration Holdings Ltd (ASX: LNK)

The Link Administration share price is up 2% to $5.00. This morning the administration services company revealed that a consortium comprising Pacific Equity Partners, Carlyle Group, and their affiliates have returned with another takeover offer. The consortium has increased its non-binding indicative proposal by 20 cents to a cash price of $5.40 per share. This follows the rejection of its previous approach last week.

Qantas Airways Limited (ASX: QAN)

The Qantas share price has ascended 1.5% to $4.62. Positive COVID-19 data out of Victoria and a broker note out of Morgan Stanley appear to be the drivers of this gain. In respect to the latter, this morning the broker reiterated its overweight rating and $4.90 price target on the airline operator’s shares. This implies potential upside of 6% from here.

More reading

• 5 major ASX 200 events this week
• Coca-Cola Amatil (ASX:CCL) in $10 billion takeover bid
• ASX 200 Weekly Wrap: ASX snaps winning streak… just
• 5 things to watch on the ASX 200 on Monday
• These were the best performing ASX 200 shares last 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 Link Administration Holdings Ltd. The Motley Fool Australia has recommended Link Administration Holdings 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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The Adairs Ltd (ASX: ADH) share price has made a quick turnaround today, first surging higher 4.4% higher, to now 4.15% lower. This wild price swing follows the release of a trading update and AGM to shareholders.

In late-morning trade, shares in the manchester and homewares retailer are down 3.8% to $3.71. In comparison, the All Ordinaries Index (ASX: XAO) is up 0.3% to 6,391 points.

Let’s see how Adairs performed for the first 17 weeks of FY21 and what was said in its AGM.

Trading update

For the period ending October 25, Adairs reported a robust result despite COVID-19 closing 43 Melbourne stores.

Total sales increased 22% over the prior corresponding period (pcp), underpinned by its online segment which grew 134%. Adairs reported sales stayed up across all channels, and that it was well ahead of the same time last year.

Online sales represented 41% of total sales versus 17% over the pcp.

Management advised that gross margins were above FY20 levels, remaining a key focus with the pricing and outsourcing measures undertaken. Underlying trading gross margin is roughly 600 bps higher than last year’s period, and its Mocka business 150 bps higher.

Gross margins are expected to moderate from current levels as FY21 continues. This is due to consumers having more options for discretionary spend as coronavirus restrictions lift further.

Inventory levels were reduced over the past 6 months to manage cost and liquidity. As Adairs saw stronger than expected sales, inventory levels have increased ahead of the Christmas holiday period.

Overall costs within the business are being kept in line, with most spend occurring in marketing to capture new customers. In addition, government wage subsidies have helped Adairs support team members stood down from government-mandated store closures.

With the ongoing uncertainty around COVID-19, the board did not provide a guidance for FY21.

What did management say at the AGM?

Adairs CEO and managing director Mark Ronan said:

I am pleased that the momentum seen in the second half of FY20 has continued into FY21. These results highlight the strength and continued success of our brands, supported by our omni channel strategy and operational agility. We continue to see our customers invest more in the comfort of their homes, where many are spending more time working and studying.

Mr Ronan said the Adairs team had delivered a great product range under challenging circumstances, with all categories performing well.

This has been supported by all team members across the business working collectively to enable customers to shop via their preferred channel in a safe manner over this period. I have been so proud to see the passion and commitment of our team to work through the challenges and focus on what really matters – inspiring and delighting our customers.

More reading

• ASX 200 Weekly Wrap: ASX snaps winning streak… just
• Why the Laneway Resources (ASX:LNY) share price popped 14% higher today
• Why the Lark (ASX:LRK) share price is flying high today
• Weebit (ASX:WBT) share price surges 17% higher on Q1 update
• Why the Carbon Revolution (ASX:CBR) share price soared 14% higher today

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has recommended ADAIRS 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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Over the last couple of years, few ASX shares have been in the financial media spotlight more than so-called WAAAX shares: WiseTech Global Ltd (ASX: WTC), Afterpay Ltd (ASX: APT), Appen Ltd (ASX: APX), Altium Limited (ASX: ALU) and Xero Limited (ASX: XRO). These companies’ share prices have all exploded over the last few years, and have been mostly immune to the effects of COVID-19. The Afterpay share price, in particular, has recently soared to unbelievable new highs, surging beyond $100 for the first time in its history just last week.

But there is a new generation of young tech companies that have started making waves on the ASX, due in large part to their abilities to meet the unique demands posed by our new COVID economy. Whether it’s by helping companies automate manual processes or adjust to remote working conditions, these companies are seizing this moment to expand their market share. It’s possible that one day, they may even grow to become the next WAAAX shares.  

Could these ASX tech shares form the next WAAAX?

Bigtincan Holdings Ltd (ASX: BTH)

Bigtincan’s flagship sales enablement automation platform is a centralised, integrated software solution that is designed to support businesses throughout their entire sales and marketing lifecycle. This encompasses everything from onboarding and training new staff, to engaging new customers and providing accurate reporting.

Bigtincan delivered strong FY20 results across just about all its key financial metrics. Revenues increased by 56% year on year to $31 million, powered by a 57% jump in subscriptions revenues to $29.5 million. Plus, customer retention levels were a high 89%. With a loyal customer base and high levels of recurring subscription-based revenues, I think Bigtincan is a great company with considerable future growth ahead of it. 

Nitro Software Ltd (ASX: NTO)

Nitro develops a suite of software solutions to allow individuals and businesses to streamline and digitise document workflows. This allows companies to create, edit, sign and store important documents entirely online. Not only does this simplify document management, but it can massively reduce printing costs for large companies, and even make them more environmentally friendly.

With more companies now working remotely, demand for Nitro’s digital document management software has increased dramatically. Revenue for the half year ended 30 June 2020 was up 14% against the June half 2019 to US$19.1 million. This was largely driven by a 60% increase in subscription revenue. The ASX tech share reaffirmed its prospectus guidance for total revenue of at least US$40.5 million for the calendar year.

Megaport Ltd (ASX: MP1)

Megaport leverages cloud-based technology to create customisable networks for corporate clients. It helps clients expand their network connectivity beyond the limits of traditional infrastructure, which is something more and more companies are having to do in this COVID-era of remote working.

Megaport’s bespoke networks also give clients the ability to manage their bandwidth usage. They can scale up their consumption needs during peak times, and then only pay for what they actually use during less busy periods.

Despite a recent pullback in the Megaport share price, I believe this ASX tech share has plenty of growth potential over the longer term. The September quarter saw a record increase in customer numbers, and it is now executing on plans to expand into the United States.

FINEOS Corporation Holdings PLC (ASX: FCL)

FINEOS develops a suite of software for the life, accident and health insurance industries. Its AdminSuite platform is a centralised system that supports billing, claims and payments. Its customer-centric software automates and streamlines processes for insurance providers and can replace legacy insurance administration platforms.

The FINEOS share price has soared over 80% higher already this year after it achieved a number of significant milestones, including signing the biggest insurance company in the US, Prudential Financial Inc (NYSE: PRU), to its platform.  

Whispir Ltd (ASX: WSP)

Whispir develops integrated communications software for corporate clients. It provides a central platform from which its customers can create customisable templates for email, web and social media communications, as well as manage workflows and drive insightful reporting.

The September quarter was the company’s strongest on record in terms of cash receipts, with the ASX tech share bringing in $10.5 million. The company expects full year revenues for FY21 to grow by at least 21% over FY20 to between $47.5 million and $51 million.

More reading

• Is Temple & Webster Group Ltd (ASX:TPW) still a buy?
• ASX 200 Weekly Wrap: ASX snaps winning streak… just
• These were the worst performing ASX 200 shares last week
• Brokers name 3 ASX shares to buy right now
• Is the Megaport (ASX:MP1) share price in the buy zone today?

Rhys Brock owns shares of AFTERPAY T FPO, Altium, Appen Ltd, BIGTINCAN FPO, MEGAPORT FPO, Nitro Software Limited, Whispir Ltd, and WiseTech Global. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Altium, BIGTINCAN FPO, MEGAPORT FPO, and Whispir Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Xero. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends FINEOS Holdings plc. The Motley Fool Australia owns shares of AFTERPAY T FPO, Appen Ltd, and WiseTech Global. The Motley Fool Australia has recommended BIGTINCAN FPO, FINEOS Holdings plc, MEGAPORT FPO, Nitro Software Limited, and Whispir 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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The Damstra Holdings Ltd (ASX: DTC) share price has started the week in a positive fashion.

In morning trade the integrated workplace management solutions provider’s shares are up 1.5% to $2.15.

Why is the Damstra share price pushing higher?

Investors have been buying Damstra’s shares on Monday following the release of its first quarter update which revealed record revenue, cash receipts, and operating cash flow.

According to the release, for the three months ended 30 September, Damstra reported revenue of $5.2 million, up 34% on the prior corresponding period.

The company’s cash receipts grew even quicker and were up 61% on the prior corresponding period to $7.1 million.

Operating cash flow came in at $2.4 million for the three months. This was up 25% on the prior corresponding period and left the company with a cash balance of $9.6 million. This cash balance includes the costs associated with the Vault Intelligence transaction.

Key metrics improving.

It wasn’t just its financials that improved during the first quarter of FY 2021. Damstra reported improvements in its users, client numbers, and gross margin.

User numbers now stand at 418,000, client numbers have hit 326, and its gross margin has widened to 72%.

What were the drivers of its growth?

Management notes that in its core construction vertical, user numbers increased to ~68,000 from ~62,000 at end of FY 2020. This has been driven by new project rollouts, mobilisation of workforce for large infrastructure projects, and return to work on workers with COVID restrictions lifting.

And while NBN users plateaued during the quarter, it believes the vertical has a positive outlook given the recent Federal Government announcement of fibre to the home deployment.

Elsewhere, Velpic user number were up by 12% for the quarter from 17,000 to 19,000 users, showing continued uptake of online learning solutions.

Finally, a range of client orders have been received for its next generation of fever detection facial recognition solution. The solution will be deployed in various industries across Australia and North America.

Damstra’s CEO, Christian Damstra, commented: “We have started FY21 strongly and successfully completed the Vault transaction. We see this as a year of continued evolution with our business having increasing size, scale and product innovation to accelerate international growth.”

“From an investor perspective, this is important as we believe we have significantly reduced our overall risk profile while increasing our organisational capability. We now have a presence in South East Asia and will continue to add significant resources in North America,” he added.

More reading

• How far could your $10,000 go in this ASX tech share 
• Why the the Damstra (ASX:DTC) share price has surged 5%
• Top ASX Stock Picks for October 2020

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Damstra Holdings Ltd. The Motley Fool Australia owns shares of and has recommended Damstra Holdings 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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After surging to an all-time high of $14.05, shares in ASX furniture ecommerce company Temple & Webster Group Ltd (ASX:TPW) suffered a massive correction this week. Temple & Webster shares have plummeted almost 25% lower to $10.77 since the company’s annual general meeting (AGM) on Wednesday. It joined a number of other COVID-19 market darlings, including tech companies Megaport Ltd (ASX:MP1) and Whispir Ltd (ASX:WSP), that have suffered big selloffs this week as short-term investors took some of their profits off the table.

What sparked the selloff?

It’s hard to say what prompted the sharp decline in the Temple & Webster share price, as most news out of the AGM was positive. In his address to shareholders, company chair Stephen Heath touched on Temple & Webster’s impressive FY20 achievements. These included record annual revenues of $176.3 million and 483% growth in earnings before interest, tax, depreciation and amortisation (EBITDA).

CEO Mark Coulter then gave a trading update for FY21. First quarter EBITDA came in at $8.6 million, which was already greater than the company’s full year FY20 result. Revenue growth has been accelerating, with year-to-date revenues to October 19 up 138% against the prior comparative period.

There’s not much in those statements to deter investors. Could some of Temple & Webster’s forward-looking statements be overly optimistic? For example, the company assumes that COVID-19 lockdowns will create long-lasting structural changes in consumer behaviour. This may well be the case, but it’s still difficult to predict exactly how buying habits will change once lockdown restrictions ease. Particularly over the second half of FY21 and beyond.

There is also the potential that, as the recession starts to bite, consumers will have less disposable income to spend on luxury items like homewares and furniture. Additionally, as other industries including domestic tourism open up again, people have more options on where they can spend their money. Companies like Temple & Webster and JB Hi-Fi Ltd (ASX:JBH), which has also enjoyed a bump in revenues during lockdowns, might start to see their sales decline.

Investors may also have seen what Stephen Heath, Mark Coulter and co-founder and director Conrad Yui have been doing with their holdings. All three have sold significant parcels of their own shares in Temple & Webster in recent months. When those with inside knowledge of the company start selling off their holdings, it generally sends a message to the market that the share price might be getting overvalued.

Is now a good time to buy?

With the share price now essentially back to where it was in early September, now could be a good time to pick up shares in a growing company at bargain prices. Temple & Webster was a surprise success story to emerge out of COVID-19, but the company’s continued growth throughout the early stages of FY21 could signal that it still has plenty of gas left in the tank. Plus, the company ended FY20 with a strong balance sheet, consisting of almost $40 million in cash and nil debt.

There may be some lingering questions over how consumer behaviour will impact Temple & Webster’s sales over the longer-term. But the company is putting itself in a strong enough financial position to meet those challenges. I think it’s more likely the recent share price pullback has been driven by profit-taking from short-term investors, prompted in part by the actions of the company’s own leadership team. However, I think this could present new investors with a rare opportunity to pick up shares in this growing company at a significant discount.

More reading

• 5 major ASX 200 events this week
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Rhys Brock owns shares of MEGAPORT FPO, Temple & Webster Group Ltd, and Whispir Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends MEGAPORT FPO and Whispir Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Temple & Webster Group Ltd. The Motley Fool Australia has recommended MEGAPORT FPO, Temple & Webster Group Ltd, and Whispir 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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The 2020 market crash has caused a wide range of stocks to trade at cheap prices. This situation may persist in the short run due to risks such as coronavirus. However, over the long run a return to higher valuations seems likely based on the stock market’s past performance.

Therefore, now could be the right time to buy a diverse range of shares while they offer wide margins of safety. Over time, they could boost your portfolio’s performance and improve your chances of making a million.

A recovery after the market crash

While some shares have recovered to 2019 levels after the recent market crash, many other companies continue to trade at cheap prices. This may be because threats such as coronavirus, Brexit and the US election are weighing on their financial prospects and causing investor sentiment to weaken.

However, the past performance of the stock market shows that a reversion to average long-term valuations is likely over the long run. In other words, stocks with valuations that are significantly below their previous long-term averages are unlikely to trade at such low prices in perpetuity.

Therefore, investors who take advantage of the market crash through buying cheap stocks could benefit from their upward reratings over the long run. This may translate into capital returns that outperform the stock market’s growth rate in the coming years.

Economic growth prospects

Clearly, there is a risk of a second market crash later this year. However, investors who have a long-term outlook can take advantage of this potential threat, since they will have sufficient time to benefit from a subsequent recovery.

The world economy has always produced a turnaround after its periods of negative performance to post strong GDP growth over the long run. Therefore, in the coming years it is likely to follow the same pattern – especially with the scale of monetary policy stimulus that has so far been announced in major economies across the world. It has the potential to lift asset prices and push investors towards riskier assets in an era of low interest rates.

Making a million

Investing money in cheap stocks after the market crash could lead to higher returns than the wider stock market over the long run. However, even if you obtain a similar return to the stock market’s past annualised growth rate of around 8%, you could make a million within 30 years through investing $750 per month.

As such, now could be the right time to start buying undervalued shares. Investing either a lump sum now, or more modest amounts on a regular basis, could allow you to obtain impressive returns as market valuations gradually improve and the prospects for the world economy strengthen.

More reading

• Is Temple & Webster Group Ltd (ASX:TPW) still a buy?
• Why the CogState (ASX:CGS) share price is rocketing 36% higher today
• 5 major ASX 200 events this week
• The Magellan (ASX:MFG) share price fell 4% last week. Here’s why.
• How did ASX cannabis shares perform last quarter? 

Motley Fool contributor Peter Stephens 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.

The post Market crash 2020 alert: Buying today’s cheap stocks could make you a million appeared first on Motley Fool Australia.

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The CogState Limited (ASX: CGS) share price has been an exceptionally strong performer on Monday.

At the time of writing, the neuroscience technology company’s shares are up a massive 36% to a 52-week high of $1.08.

Why is the CogState share price rocketing higher?

Investors have been buying the company’s shares this morning following the announcement of an agreement with Japanese pharmaceutical company, Eisai.

According to the release, the agreement will see Eisai exclusively distribute Cogstate digital cognitive assessment technologies in healthcare and other markets world-wide.

The agreement excludes clinical trials, where Cogstate will continue to market its offering independently.

What are the terms of the agreement?

The release explains that Eisai will provide an upfront payment to Cogstate of US$15million, which is payable within 45 days.

The pharmaceutical company will also pay Cogstate a royalty on sales. This will be determined by a range of factors including the retail market price of Cogstate technology in all regions or calculated on a per user basis.

Eisai will also fund necessary product development activities to further tailor Cogstate solutions for each territory and use case and be responsible for all commercial activities in respect of the sale and marketing of the technology in all territories.

The agreement has an initial term of ten years for each country, from its first commercial product sale on a country by country basis. Eisai has agreed to make commercially reasonable efforts to make its first sales in the US within 1 year, the EU with 3 years, and China with 4 years.

Furthermore, the agreement provides for cumulative royalties of at least US$30 million over the term of the license, unless terminated earlier.

The minimum royalties will be no less than US$10 million for the period of years one to five and then no less than US$20 million for the period of years six to ten.

What is CogState’s technology?

The company’s technology optimises brain health assessments to advance the development of new medicines and to enable earlier clinical insights in healthcare.

It provides rapid, reliable, and highly sensitive computerised cognitive tests across a growing list of domains and support electronic clinical outcome assessment (eCOA) solutions. These can replace costly and error-prone paper assessments with real-time data capture.

More reading

• 5 major ASX 200 events this week
• The Magellan (ASX:MFG) share price fell 4% last week. Here’s why.
• How did ASX cannabis shares perform last quarter? 
• Why the Clinuvel (ASX:CUV) share price is pushing higher today
• Why the Marley Spoon (ASX:MMM) share price is crashing 17% lower today

Motley Fool contributor James Mickleboro 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.

The post Why the CogState (ASX:CGS) share price is rocketing 36% higher today appeared first on Motley Fool Australia.

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