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The ASX has some really good tech shares as potential investments. There are some individual businesses as well as portfolio options.

Businesses that are generating underlying growth have a good chance of producing capital returns over time.

That’s why these three ASX tech shares could be ones to think about:

Xero Limited (ASX: XRO)

Xero is one of the biggest and perhaps one of the best technology companies in the world.

It is carving out a position as a global market leader in cloud accounting. In Xero’s FY21, it achieved total subscriber growth of 20% to 2.74 million. That included 17% growth of UK subscribers to 720,000, 18% growth of North American subscribers to 285,000 and 40% growth of rest of the world subscribers to 175,000.

Xero is investing heavily for growth. It regularly tells investors it has a preference to re-invest cash generated to drive long-term shareholder value.

However, there are certain financial measures that show how profitable this ASX tech share is and how much profit it could make if it wasn’t investing so heavily. Its FY21 gross profit margin was 86%. Whilst operating revenue grew by 18% to NZ$848.8 million, free cashflow rose 110% to NZ$57 million.

Betashares Asia Technology Tigers ETF (ASX: ASIA)

This is an exchange-traded fund (ETF) that is focused on giving investors exposure to Asian technology businesses outside of Japan.

That means it ends up with holdings like Tencent, Samsung Electronics, Alibaba, Taiwan Semiconductor Manufacturing, Meituan, Pinduoduo, JD.com, Infosys, Sea and Netease.

There’s a total of 50 names in the portfolio, around half of the portfolio is based in China and another quarter is listed in Taiwan. A further 20% is in South Korea. India is the only other country with a meaningful weighting at 5.7%.

Despite the annual management fee cost of 0.67% per annum, it has been a very high-performing ETF. Since inception in September 2018, it has produced average net returns of 30.5% per annum.

The underlying Asian businesses continue to grow revenue at a pleasing pace which should help grow the value of the ETF over time.

Bailador Technology Investments Ltd (ASX: BTI)

This is an interesting ASX tech share. It’s run as a growth capital fund. It gives exposure to a portfolio of tech companies with global addressable markets. Bailador invests in private technology companies at the expansion stage.

It has a number of different investments in its portfolio currently, including SiteMinder, Instaclustr, Stackla, Straker Translations Ltd (ASX: STG), Rezdy and Brosa.

Bailador aims to be a long-term investor in the tech businesses when it first takes a position. Its investment normally helps that tech company deliver the growth that it’s trying to achieve.

One of its most recent success stories has been Lendi, which is currently merging with Aussie Home Loans. Bailador invested a total of $5.5 million into Lendi during 2016 and 2017. It got back $13.4 million from the investment with the merger, meaning it made 2.4 times its money at an internal rate of return of 21%.

At the current Bailador share price, it’s valued at a pre-tax net tangible tax (NTA) discount of around 11%.

More reading

• These were the worst performing ASX 200 shares last week
• ASX 200 rebounds, Treasury rises, Xero falls
• Why De Grey, GrainCorp, Pilbara Minerals, & Xero shares are dropping
• Has COVID-19 killed the ASX WAAAX shares?
• Could this be a once-in-a-lifetime buying opportunity for ASX tech shares?

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 Xero. The Motley Fool Australia owns shares of and has recommended BetaShares Asia Technology Tigers ETF. The Motley Fool Australia has recommended Bailador Technology Investments Limited and Straker Translations. 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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Last week saw a number of broker notes hitting the wires once again. Three buy ratings that caught my eye are summarised below.

Here’s why brokers think investors ought to buy them next week:

REA Group Limited (ASX: REA)

According to a note out of Macquarie, its analysts have retained their outperform rating and lifted their price target on this property listings company’s shares to $179.10. This follows the release of a strong third quarter update earlier this month. Macquarie was pleased with its update and remains positive on its outlook. Particularly given its expectation for a positive shift in its sales mix and depth growth. The REA Group share price ended the week at $147.70.

Star Entertainment Group Ltd (ASX: SGR)

Another note out of Macquarie reveals that its analysts have retained their outperform rating and $4.65 price target on this casino and resorts operator’s shares. This follows the announcement of a proposal to merge with rival Crown Resorts Ltd (ASX: CWN). Macquarie sees a lot of positives from the proposal, such as upwards of $200 million in synergies. Overall, if everything goes to plan, it believes its shares could be worth $7.00 a share eventually. The Star share price ended the week at $4.06.

Woolworths Group Ltd (ASX: WOW)

Analysts at Morgan Stanley have retained their overweight rating and $44.00 price target on this retail conglomerate’s shares. This follows confirmation that the company is looking to demerge its Endeavour Drinks business. The broker is happy with the plan and believes that Woolworths’ balance sheet will be strong enough to return upwards of $2 billion to shareholders via capital management initiatives. The Woolworths share price was fetching $40.58 at Friday’s close.

More reading

• These were the best performing ASX 200 shares last week
• Broker eyes these ASX 200 shares following Federal Budget
• Crown Resorts (ASX:CWN) share price lifts amid sell-off push
• The Crown (ASX:CWN) share price is in focus today. Here’s why
• 2 ASX 200 blue chip shares rated as buys

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Woolworths Limited. The Motley Fool Australia has recommended REA Group Limited. 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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There are some leading ASX dividend shares that could be ideas to think about for income, according to some brokers.

It’s tricky to find good dividends right now because of how low the official interest rate is from the Reserve Bank of Australia (RBA).

These two ASX dividend shares could be ones to think about:

Aventus Group (ASX: AVN)

Aventus is Australia’s largest fully-integrated owner, manager and developer of large format retail centres. It has around 20 locations that are worth more approximately $2 billion.

National tenants represent more than 87% of the portfolio, so it has a high number of blue chip tenants which should provide good rental reliability.

COVID-19 caused some disruption, but (excluding Victoria) traffic was 8% higher than pre-COVID levels across the portfolio in the FY21 half-year result. Occupancy is sitting at 98.5% and cash collection was at 98%.

Aventus believes that its diversified tenant base is well-placed to benefit from the recent household shift to working, learning and entertaining from home.

The FY21 half-year result showed the net asset value (NAV) increased by 3.7% to $2.50 per security and funds from operations (FFO) – the net rental profit – increased by 6.5% to 10 cents per security. The half-year distribution was 8.2 cents per security.

Aventus’ balance sheet is in decent shape, with gearing sitting at 34%.

The property ASX dividend share is now expecting to generate FFO of at least 19 cents per security, which would be growth of at least 4%.

Aventus is currently rated as a buy by Morgans. The broker thinks that Aventus could pay a FY21 distribution of 17.4 cents. This would translate to a distribution yield of 6.1%.

APA Group (ASX: APA)

APA is an energy infrastructure giant that is currently rated as a buy by a few different brokers including Macquarie Group Ltd (ASX: MQG).

One of the main positives for APA, in the broker’s eyes, has been the final investment decision (FID) on expanding its east coast grid. APA has extended its contract with Origin Energy Ltd (ASX: ORG). Contract extensions are expected with Energy Australia and AGL Energy Ltd (ASX: AGL).

The gas transportation agreement with Origin Energy will start on 1 January 2023 and will support Origin’s energy needs in the southern markets, including winter peak demand and ahead of projected potential 2023 supply risks. Under this agreement, Origin could meet over half of NSW’s winter demand.

Total incremental revenue for the ASX dividend share over the initial three-year GTA is around $190 million, with the option of a further two-year extension.

APA reached the FID on the East Coast Grid expansion project due to strong customer demand for transportation capacity, combined with existing contracted positions and available capacity.

The expansion will be delivered in two stages, at a capital investment of around $270 million. It will increase winter peak capacity of the East Coast Grid by 25% through additional compression and associated works. The first stage of works is targeted for commissioning in the first quarter of the 2023 calendar year.

Macquarie estimated APA will pay a distribution of 51 cents per security in FY21. This translates to a distribution yield of 5.3%.

More reading

• 2 ASX dividend shares with generous yields
• 2 buy-rated ASX dividend shares for income investors
• APA (ASX:APA) share price falls despite expansion and new agreement
• Here’s why the Aventus (ASX:AVN) share price is on the rise
• 2 excellent ASX dividend shares with generous yields

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool Australia owns shares of APA Group. The Motley Fool Australia has recommended AVENTUS RE UNIT. 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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Once again, a large number of broker notes hit the wires last week. Some of these notes were positive and some were bearish.

Three sell ratings that caught my eye are summarised below. Here’s why top brokers think investors ought to sell these shares next week:

A2 Milk Company Ltd (ASX: A2M)

According to a note out of Macquarie, its analysts have downgraded this infant formula company’s shares to an underperform rating with a $5.60 price target. This follows the company’s fourth earnings guidance downgrade for FY 2021. The broker doesn’t appear to believe that the issues the company is facing will be an easy fix. Particularly given changes in consumer preferences in the massive China market, which make its future performance highly uncertain. The a2 Milk share price ended the week at $5.53.

AGL Energy Limited (ASX: AGL)

Analysts at Credit Suisse have retained their underperform rating and cut the price target on this energy company’s shares to $7.00. According to the note, the broker has been looking into its separation plans. And while it sees some positives in the move, it doesn’t expect it to change its growth outlook. Credit Suisse only sees modest growth from the New AGL business over the coming years. The AGL share price was fetching $8.51 at Friday’s close.

Commonwealth Bank of Australia (ASX: CBA)

A note out of Morgan Stanley reveals that its analysts have retained their underweight rating and $83.00 price target on this banking giant’s shares. This follows the release of a stronger than expected third quarter profit result. However, this isn’t enough for a change in its recommendation. The broker continues to believe that its shares are overvalued at the current level and prefers other options in the sector. The Commonwealth Bank share price ended the week at $96.58.

More reading

• These were the worst performing ASX 200 shares last week
• What drove the Commonwealth Bank (ASX:CBA) share price this week?
• The Commonwealth Bank (ASX:CBA) share price hits new record high
• Has the A2 Milk (ASX:A2M) share price finally found a bottom?
• ASX 200 falls below 7,000, Xero sinks, Afterpay falls

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended A2 Milk. 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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If you have a penchant for growth shares, then I have good news for you. The Australian share market is home to a good number of companies growing their earnings at a quick rate.

Two ASX growth shares that could be worth a closer look are listed below. Here’s what you need to know about them:

IDP Education Ltd (ASX: IEL)

The first ASX growth share to look at is this international student placement and English language testing services provider.

The COVID-19 pandemic hit the company very hard for obvious reasons. For example, during the first half of FY 2021, the company posted a 29% decline in revenue to $269 million and a 46% decline in EBIT to $47.3 million.

However, these numbers don’t tell the whole story. IDP Education’s performance improved greatly as the half progressed. So much so, its testing volumes had actually risen close to pre-pandemic levels by the end of the period. And while the terrible situation in India will be a step backwards, it should rebound quickly once the crisis is controlled.

Looking ahead, the company appears to be in a strong position to win a greater share of the market when the pandemic passes. This is due to its software investments and the fact that many of its smaller rivals haven’t fared as well during the crisis.

Morgan Stanley is a fan of the company. It currently has an overweight rating and $30.00 price target on its shares. The broker continues to predict a big rebound in its earnings in FY 2022.

Pushpay Holdings Group Ltd (ASX: PPH)

Another ASX growth share to look at is Pushpay. It is leading donor management and community engagement platform provider for the faith sector. It has been growing at a rapid rate in recent years and continued this positive trend in FY 2021.

For the 12 months ended 31 March, Pushpay delivered operating revenue of US$179.1 million. This was a 40% or US$51.6 million increase on the prior corresponding period.

And thanks to the achievement of further operating leverage, Pushpay reported EBITDAF of US$58.9 million for FY 2021. This was an increase of 133% year on year. It was also in line with its FY 2021 guidance for EBITDAF of between US$56 million and US$60 million, which was upgraded three times during the course of the year.

Looking ahead, the company is expecting its growth to continue in FY 2022. Pushpay expects its operating earnings to grow 12% to 20.5% year on year. Though, this guidance doesn’t include its increased investment to enter the lucrative Catholic church market.

Speaking about the expansion, management said: “The Catholic initiative is our first step in investing to grow our Customer base outside of our existing core Customer base, and we have set the goal of acquiring more than 25% of the Catholic church management system and donor management system market over the next five years.”

Combined with its existing market, this gives it a very long runway for growth over the next decade.

More reading

• Fund managers have been buying EML Payments (ASX:EML) and this ASX share
• Broker tips IDP Education (ASX:IEL) share price to smash the market in 2021
• 3 buy rated mid cap ASX shares for the long term
• ASX 200 drops again, Pushpay rises, CSR climbs
• Pushpay (ASX:PPH) share price on watch after FY 2021 results

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 Idp Education Pty Ltd and PUSHPAY FPO NZX. The Motley Fool Australia has recommended PUSHPAY FPO NZX. 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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Are you looking to add to your income portfolio in the near future? If you are, then you might want to look at the ASX dividend shares listed below.

Here’s what you need to know about them:

National Storage REIT (ASX: NSR)

The first ASX dividend share to look at is National Storage. It is one of the ANZ region’s largest self storage operators with over 200 centres. From these centres, it tailors self-storage solutions to residential and commercial customers.

Thanks to its centre development and acquisition plans and the favourable housing cycle, National Storage looks well-placed for growth in the coming years.

For now, in FY 2021, the company expects to report underlying earnings per share of 7.7 cents to 8.3 cents. From this, it plans to pay 90% to 100% out to shareholders as distributions.

Based on the current National Storage share price and the middle of these guidance ranges, its shares offer investors a 3.8% dividend yield.

Telstra Corporation Ltd (ASX: TLS)

Another ASX dividend share for income investors to consider is Telstra. After a few years of struggles, this telco giant’s outlook is improving greatly.

This due to rational competition in the telco industry, the easing NBN headwind, its T22 strategy, its leadership position in 5G internet, and its plan to split into three separate businesses. The latter is expected to simplify its operations and allow Telstra to take advantage of potential monetisation opportunities for non-core assets.

Goldman Sachs is positive on Telstra. It recently retained its buy rating and $4.00 price target on the company’s shares.

The broker also continues to forecast the company paying a 16 cents per share fully franked dividend for the foreseeable future. Based on the current Telstra share price, this will mean a very attractive 4.6% dividend yield over the next 12 months.

More reading

• Top brokers name 3 ASX dividend shares to buy today
• These ASX dividend shares offer generous fully franked yields
• Why it might be time to give the TPG (ASX:TPG) and Telstra (ASX:TLS) share price a second look
• ASX 200 down 0.4%: Xero sinks, Telstra hit with $50m fine
• Telstra (ASX:TLS) share price higher despite being hit with $50 million penalty

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. 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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There are some very high quality S&P/ASX 200 Index (ASX: XJO) shares that would be worth owning for the long-term.

Some ASX 200 shares have proven to be very defensive, even during a pandemic. They are large enough to be reliable but small enough to have plenty of growth potential.

Bapcor Ltd (ASX: BAP)

Bapcor is the largest auto parts business in Australasia with a number of different divisions.

It recently expanded its exposure to Asia after an important investment in Tye Soon. It now owns 25% of the business. Tye Soon is described as the most prominent independent auto parts distributor in South East and North East Asia. It has operations in Singapore, Malaysia, Thailand, Hong Kong, South Korea and Australia. This business makes around $200 million Singaporean dollars of annual revenue. This 25% stake cost S$12.5 million.

Bapcor is also growing its own Burson business in Asia, starting in Thailand. Burson is the key profit driver of the ASX 200 share, with a large client base of mechanics across Australia. Burson grows profit in a number of different ways. It grows same store sales, Burson is adding stores (it now has around 200) and the earnings before interest, tax, depreciation and amortisation (EBITDA) margin continues to rise.

But Burson isn’t the only division that’s growing. Autobarn is seeing a retail boom and the specialist wholesale businesses are also seeing good growth. Bapcor has also recently expanded into truck parts as well.

The ASX 200 share has plans to grow its networks of trade, retail and service locations over the coming years. It also wants to sell more private label products and increase efficiencies.

According to Commsec, the Bapcor share price is valued at just 20 times FY22’s estimated earnings.

Sonic Healthcare Ltd (ASX: SHL)

Sonic Healthcare is one of the biggest ASX 200 healthcare shares.

The business has a large presence in pathology in Australia, Europe and North America. It has been growing for a few decades and it’s providing a very valuable service in COVID-19 testing with its PCR tests. It has been conducting millions of tests.

Its pre-COVID business is proving to be increasingly resilient to the impacts of the pandemic.. When COVID-19 subsides, Sonic should be able to grow with the ageing demographics and the advancements in medical diagnostics.

During this pandemic, Sonic’s experience shows that the temporary base business declines are more than offset by increased COVID-19 testing.

The high levels of profit has reduced its debt levels and now Sonic is well positioned to continue to pursue value-accretive growth opportunities, including acquisitions. It’s also looking at contract and joint venture growth opportunities. Sonic is bidding on “significant” opportunities in Australia, the UK, the USA and Canada.

Sonic says that geographical diversification provides increased opportunities for expansion.

The company expects that COVID-19 PCR testing will continue for the foreseeable future and there’s potential demand for COVID-19 serology testing (which looks at the immunity status).

According to Commsec, the Sonic share price is valued at 24x FY22’s estimated earnings.

More reading

• These were the worst performing ASX 200 shares last week
• These were the best performing ASX 200 shares last week
• ASX 200 rebounds, Treasury rises, Xero falls
• What drove the Commonwealth Bank (ASX:CBA) share price this week?
• Why is the Magellan (ASX:MFG) share price up 4% today?

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Bapcor. The Motley Fool Australia has recommended Sonic Healthcare Limited. 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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There are some smaller ASX dividend shares that have pretty big dividend yields.

Smaller businesses are often less covered by analysts and investors which can lead to lower price/earnings ratios and higher dividend ratios.

These ASX dividend shares all have high dividend yields on offer:

Pacific Current Group Ltd (ASX: PAC)

This is a business that makes investments into global investment managers around the world. Each investment and fee structure is different, but Pacific benefits if the funds under management (FUM) grows.

Using the last 12 months of dividends, Pacific has a trailing grossed-up dividend yield of 9.1%. As the FUM grows, the underlying profitability of the Pacific business increases (particularly as it is lowering its costs after the onset of COVID-19).

Pacific continues to invest into new opportunities such as Astarte Capital Partners which may be able to become larger contributors to profit in the coming years.

It’s currently rated as a buy by Ord Minnett with a price target of $6.70. In FY22, it’s expected by the broker to pay a grossed-up dividend yield of 9.6%.

Pengana Capital Group Ltd (ASX: PCG)

Pengana is a fund management business. At the end of March 2021, it had $3.71 billion of FUM (up from $3.63 billion in February 2021).

It earns management fees and performance fees from the FUM that it manages, which turns into profit and dividends for shareholders.

Looking at the last 12 months of dividends, Pengana has a grossed-up dividend yield of 7.4%.

The ASX dividend share’s FY21 half-year FUM increased by 15% and underlying profit before tax increased by 17.1%. The board was happy enough to increase the interim dividend of 25% to 5 cents per share.

Accent Group Ltd (ASX: AX1)

Accent is a business that aims to increase its dividend consistently for investors. Indeed, its dividend has actually been consistently growing over the last few years.

The FY21 half-year result saw the board increase the dividend by 52.4% to 8 cents per share. This was funded by a 56.9% increase of the earnings per share (EPS), with earnings before interest tax (EBIT) going up 47.3% and digital sales jumping 110%.

Accent Group continues to make compelling acquisitions, such as the Glue Store which diversifies the company’s earnings and gives it more avenues to grow.

The ASX dividend share also continues to grow its store network, increase store like for like sales and improve its profit margins. The gross margin increased from 56.7% to 58.1%.

Further growth is expected into FY22. It’s expecting to open at least 90 stores in FY21 and then there should be continued strong store openings into FY22.

In the first eight weeks of the second half of FY21, like for like retail sales were up 10.7% and digital sales were up 65.4%. Online sales continues to track above 20% of total sales.

More reading

• Why these 2 ASX dividend shares may be just what your portfolio needs
• Got money to invest for dividends? Here are 2 ASX shares
• Down 9% today, why the Redbubble (ASX:RBL) share price continues to tumble
• 2 highly rated ASX dividend shares with generous fully franked yields
• 3 ASX shares to buy in May 2021

Motley Fool contributor Tristan Harrison owns shares of PACCURRENT FPO. The Motley Fool Australia has recommended Accent Group. 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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The S&P/ASX 200 Index (ASX: XJO) was out of form last week. Concerns over rising inflation in the United States spooked investors and led to the index dropping 66.6 points or 0.9% to end at 7,014.2 points.

While a good number of shares tumbled lower with the market, some fell more than most. Here’s why these were the worst performing ASX 200 shares last week:

Perenti Global Ltd (ASX: PRN)

The Perenti Global share price was the worst performer on the ASX 200 last week with a 28.6% decline. Investors were selling the mining services company’s shares following the release of an operational update. Perenti revealed that it will no longer be delivering on its guidance for second half revenue and margins in line with what it reported in the first half. Instead, due largely to COVID-19 headwinds and Australian labour market shortages, it is expecting softer earnings in the second half. It also warned that these headwinds will persist for the next 12 to 18 months.

A2 Milk Company Ltd (ASX: A2M)

The A2 Milk share price was well and truly out of form and sank 21.2% lower last week. The catalyst for this was the infant formula company downgrading its FY 2021 guidance for the fourth time. The company now expects revenue of NZ$1.2 billion to NZ$1.25 billion with EBITDA of NZ$132 million to NZ$150 million. This will mean a year on year reduction in EBITDA of 73% to 76% year on year. Sustained weakness in the daigou channel and a massive NZ$103 million to NZ$113 million inventory provision were behind the underperformance.

Xero Limited (ASX: XRO)

The Xero share price wasn’t far behind with a disappointing 15.9% decline. The cloud-based business and accounting platform provider’s shares were sold off following the release of its full year results. Although Xero delivered strong growth on both the top and bottom lines, it was still short of the market’s expectations. This was particularly the case for its EBITDA, which was 16% below the market consensus estimate. In addition to this, higher than expected operating expense guidance for FY 2022 also weighed on sentiment.

PointsBet Holdings Ltd (ASX: PBH)

The PointsBet share price was a poor performer and dropped 13% over the five days. This appears to have been driven largely by weakness in the tech sector following a strong inflation reading in the United States. It wasn’t just PointsBet that was sinking. The S&P/ASX All Technology Index (ASX: XTX) tumbled 5.7% lower over the five days.

More reading

• These were the best performing ASX 200 shares last week
• ASX 200 rebounds, Treasury rises, Xero falls
• What drove the Commonwealth Bank (ASX:CBA) share price this week?
• Why is the Magellan (ASX:MFG) share price up 4% today?
• Why De Grey, GrainCorp, Pilbara Minerals, & Xero shares are dropping

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 and recommends Pointsbet Holdings Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Xero. The Motley Fool Australia owns shares of and has recommended A2 Milk. The Motley Fool Australia has recommended Pointsbet Holdings Ltd. 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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A number of fast-growing ASX tech shares are being sold off with worries about inflation and interest rates.

Lower prices might be able offer investors a better time to buy these opportunities.

Over the long-term, these ASX tech shares may be able to recover strongly:

Kogan.com Ltd (ASX: KGN)

The Kogan share price has fallen by 40% over the last three months. Several e-commerce ASX shares have fallen heavily recently. Online shopping businesses are now cycling against strong sales performance 12 months ago during the depths of COVID-19.

Even so, Kogan is still producing high levels of sales growth. In the three months to 31 March 2021, Kogan reported that gross sales rose by 47% and revenue grew by more than 65%.

But, excess inventory and lower sales growth have combined to cause problems for Kogan.

During the period, Kogan received inventory ordered in response to the high levels of demand seen in the first half of FY21. This led to the company ending up with high levels of inventory. But then demand fluctuated to lower levels than what had been seen during FY21. That meant the company had to store larger amounts of inventory than expected, resulting in high storage costs and demurrage fees. Kogan has increased promotional activity to compensate for this and optimise its inventory position.

Gross profit grew by 54%, which was faster than the gross sales growth, showing continued margin improvement.

But the inventory issues saw the adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) decline by 24%.  

What about the future? The ASX tech share said:

The board looks to the future with confidence as the business has grown its active customer base, invested in key strategic initiatives and has a strong level of in-demand inventory heading into the end-of-financial-year and Christmas trading periods while observing price inflation through global supply chains.

VanEck Vectors Video Gaming and eSports ETF (ASX: ESPO)

This exchange-traded fund (ETF) is about giving investors exposure to the world’s leading businesses in the video gaming and e-sports world.

If you know a bit about gaming you’ve probably heard of several of the ETF’s positions, including some of the biggest 10: Nvidia, Tencent, Sea, Advanced Micro Devices, Nintendo, Activision Blizzard, Netease, Electronic Arts, Bilibili and Nexon.

An ETF’s return is simply the combined performance of its underlying holdings. VanEck Vectors Video Gaming and eSports ETF has fallen in price by 10% over the last month and 20% since mid-February.

But the gaming businesses are exposed to strong underlying trends. The video game business is now supposedly bigger than both the movie and music industries, and e-sports is the world’s fastest-growing sport.

Video gaming has achieved an average annual revenue growth rate of 12% since 2015. E-sports is opening up a number of new revenue avenues including media rights, merchandise, ticket sales and advertising.

E-sports revenue has grown by an average of 28% each year since 2015. VanEck says:

With an active, engaged and relatively young demographic, the stage is set for sustainable long-term growth.

More reading

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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 Kogan.com ltd. The Motley Fool Australia has recommended Kogan.com ltd and VanEck Vectors ETF Trust – VanEck Vectors Video Gaming and eSports ETF. 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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