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The Alliance Aviation Services Ltd (ASX: AQZ) share price is slightly in negative territory during mid-afternoon trade. This comes despite the company announcing an update to its wet lease agreement with Qantas Airways Limited (ASX: QAN).

At the time of writing, the aviation services company’s shares are selling for $4.17, down 0.4%.

What did Alliance announce?

Investors appear unfazed by the company’s latest announcement, sending Alliance shares lower.

According to its release, Alliance advised that Qantas has exercised its option to call up 5 additional Embraer E190 aircraft. This follows a wet-lease agreement signed in early February, enabling Qantas to lend 11 aircraft based on market conditions.

Previously, Qantas asked Alliance for 3 E190 aircraft to service its route network, which is expected to commence 25 May.

However, with today’s update, Qantas will now take delivery of 8 aircraft. The E190 planes will be based in Adelaide and commence operating from 21 June 2021 onwards. Qantas recently created a new Adelaide-Gold Coast route which will service 4 times per week, beginning 25 June.

The planes are expected to compete for market share against Regional Express Holdings Ltd (ASX: REX) and ASX-delisted company Virgin Australia.

Alliance managing director, Scott McMillan welcomed the extended agreement, saying:

This is an exciting development for Alliance and further extends on previous wet leasing arrangements that Alliance has had with Qantas.

The extension of the arrangements with Qantas is also further confirmation that the E190 is the perfect aircraft to take advantage of the new route network that is developing in the post- COVID aviation recovery.

Each option has an initial 3-year period, with the remaining aircraft available at Qantas’ disposal.

About the Alliance share price

In the last 12 months, Alliance shares have climbed to register a 100% gain, with year-to-date performance just below 10%. The company has been on an upwards trajectory citing a recovery in the aviation sector from COVID-19.

At today’s prices, Alliance has a market capitalisation of roughly $670 million, with approximately 160.4 million shares on issue.

More reading

• Qantas (ASX:QAN) share price lower on ACCC update
• Could the grounded Qantas (ASX:QAN) share price take off in May?
• This ASX airline you never heard of could see 40% earnings boost
• Are ASX travel shares about to go through a big recovery?
• Brokers favourite ASX share for the COVID-19 reopening trade

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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 Mighty Kingdom Ltd (ASX: MKL) share price is flopping today as the company released its newest game, Peter Rabbit Run!

At the time of writing, Mighty Kingdom shares are down 4%, trading at 24 cents apiece.

Mighty Kingdom is a game developer that works with companies including Disney, LEGO, Australian Red Cross, Funcom, Rogue, and Snapchat. Some of its games include Sugar Slam, Ava’s Manor, Wild Life, Heart Lake Rush, Danger Days, and Shopkins.

Its latest is a venture with Sony Pictures, based on the upcoming film Peter Rabbit 2: The Runaway. The first film was a bust among the critics, but a boom at the box office. The second movie, although currently in delayed release due to COVID-19, is potentially set for similar results. 

Peter Rabbit Run! can be played on iOS and Android smartphones and tablets.

Peter Rabbit running for cover

It appears the mobile game will be a simple endless running format, somewhat in the spirit of the traditional Mario franchises. The developer is hyping the cuteness, calling it “cheeky”, “fun” and “adorable”. 

It’s unclear whether the game will be a freemium model or ad-supported. But it appears likely that Sony Pictures will have provided much of the funding as a way of building additional excitement around a potential third film and additional merchandising opportunities.

Mighty Kingdom managing director Phillip Mayes said the game release was another feather in Mighty’s bow:

We are extremely excited to have worked with Sony in seeing their vision for Peter Rabbit come to life at the cinema and via Peter Rabbit Run! It’s a strong validation of the Mighty Kingdom teams’ skills in developing this game for a global franchise.

Mighty Kingdom share price snapshot

Mighty Kingdom is a new face on the ASX after listing roughly three months ago. It debuted at 28 cents but fell immediately and, excluding a small recovery at the beginning of this month, has steadily lost value since.

More reading

• Mighty Kingdom (ASX:MKL) share price falls on ASX entrance

Motley Fool contributor Lucas Radbourne-Pugh has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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) is on course to end the week on a high. In afternoon trade, the benchmark index is up 0.3% to 7,083.9 points.

Four ASX shares that have failed to follow the market higher today are listed below. Here’s why they are dropping:

CSR Limited (ASX: CSR)

The CSR share price is down 3.5% to $5.88. This decline appears to have been driven by a broker note out of Ord Minnett this morning. According to the note, the broker has downgraded the building materials company’s shares to a hold rating with a $5.50 price target. It made the move on valuation grounds following some strong gains.

Fonterra Shareholders’ Fund (ASX: FSF)

The Fonterra share price is down 4.5% to $4.05. This morning the dairy company’s shares returned from a trading halt after announcing the start of a consultation process. This process is seeking farmer feedback on potential options to change its capital structure. These changes could give farmers greater financial flexibility.

Nearmap Ltd (ASX: NEA)

The Nearmap share price has continued its slide and is down a further 5% to $1.72. Investors have been selling the aerial imagery technology and location data company’s shares this week after it was hit with legal proceedings. The company advised that rival Eagle View alleges patent infringement in relation to its roof estimation technology. Nearmap has denied any infringement and will defend the complaint.

Pro Medicus Limited (ASX: PME)

The Pro Medicus share price has dropped 6.5% to $42.89. This is despite there being no news out of the healthcare technology company. However, with a number of shares on high PE ratios coming under pressure, it isn’t overly surprising to see Pro Medicus trading lower. After all, its shares are currently changing hands for ~130x estimated FY 2021 earnings.

More reading

• ASX tech shares are in a world of pain. There might be more to come…
• ASX 200 up 0.45%: Macquarie full year results & REA Group Q3 update
• ASX 200 drops, Nearmap plunges, Appen declines
• Why Adore Beauty, Appen, Flight Centre, & Nearmap shares are sinking
• ASX 200 down 0.35%; NAB half year results, Nearmap crashes on legal threat

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 Pro Medicus Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Nearmap Ltd. The Motley Fool Australia has recommended Nearmap Ltd. and Pro Medicus 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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The Neometals Ltd (ASX: NMT) share price is slumping lower today. The falls come after the company released capital and operating cost estimates for its lithium battery recycling plant in Germany.

At the time of writing, shares in the lithium and vanadium specialist are trading at 52 cents each – down 7.14%. By comparison, the All Ordinaries Index (ASX: XAO) is 0.3% higher.

Let’s take a closer look at today’s update.

What’s up with the Neometals share price?

The Neometals share price is in the red after the company provided an estimate of the capital and operating costs for its 50%-owned Primobius commercial recycling plant in Germany.

The top-line figures, operating costs, were estimated at 1,470 euros per tonne of batteries processed. Meanwhile, the capital cost estimate is 150 million euros, including a 10% contingency.

Both the capital and operating cost estimates have increased from the company’s 2019 scoping study. Neometals claims the capital increase can be “largely attributed” to constructing its own building instead of engaging a commercial lease, more equipment to increase production, and relocating the site to Germany. Operating cost estimates are only up by around 5% from the scoping study.

According to Neometals managing director Chris Reed, the jump in operating costs is smaller than expected.

“Importantly, the operating costs have increased by less than 5% from our 2019 Scoping Study estimates despite the jump from lab to pilot-scale, and the site relocation from Kwinana to Germany,” he said.

Breaking down the operating cost estimate, Neometals expects to spend around 23% on labour, 33% on consumables and 26% on utilities. The remainder is allocated to administration and maintenance.

In further news possibly impacting the Neometals share price, the company highlighted that the price of several of its feedstock products has increased markedly since its 2019 scoping study.

For example:

• Cobalt sulphate is up 79.7% to US$11,051.
• Lithium chloride is 68.8% higher to US$8,440.
• Nickel sulphate increased 47.5% to US$4,868.

Management commentary

Mr Reed also said the following in today’s announcement:

We are extremely encouraged with the robust potential economics for Primobius’ first proposed commercial plant.

We took the conservative step to include the cost of constructing dedicated industrial buildings until such time as we are able to identify and agree terms to leased premises. Naturally, we expected the capital costs to increase in line with the change in scope and increased estimation accuracy levels.

The safe production of, amongst other things, cathode-grade nickel and cobalt sulphates from a variety of battery feedstocks, using our patent pending process, augurs well for achieving our ambitions to build Europe’s leading sustainable recycling solution.

Neometals share price snapshot

Over the past 12 months, the Neometals share price has increased by around 250%. Since the beginning of 2021, it’s also jumped by around 90%.

Neometals has a current market capitalisation of $305 million.

More reading

• Why is the Neometals (ASX:NMT) share price in a trading halt today?
• Neometals (ASX:NMT) share price slides on dual-listing update
• What’s happening with the Neometals (ASX:NMT) share price?
• Why the Neometals (ASX:NMT) share price has surged to a 52-week high
• Why the Neometals (ASX:NMT) share price is shooting 8% higher

Motley Fool contributor Marc Sidarous has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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ASX iron ore producers are in the spotlight today as the commodities price touched another record high overnight.

The iron ore price rose 5% overnight to reach a new record high of US$202.65 a tonne on the S&P Global Platts index today, reported the Australian Financial Review (AFR). It has easily surpassed its previous record of US$193.85 a tonne, set late last month.

As Australia is the largest source of China’s iron ore, the increasing political tensions have meant another boost to the commodities price. Particularly, as China is ramping up its domestic constructions activities and increasing its demand for steel.

New tensions driving iron ore

The surge in the price of iron ore comes as China’s National Development and Reform Commission released a statement yesterday declaring the nation will halt all activities under the China-Australia Strategic Economic Dialogue. 

Australia’s Minister for Trade Dan Tehan said while the commission’s decision was disappointing, Australia remains open to dialogue and engagement with China at the Ministerial level.

It is disappointing to hear that the NDRC has made this decision. The Strategic Economic Dialogue, which was last held in 2017, is an important forum for Australia and China to work through issues relevant to our economic partnership.

— Dan Tehan (@DanTehanWannon) May 6, 2021

https://platform.twitter.com/widgets.js

 

S&P Global Platt’s head of iron ore pricing Niki Wang was quoted by the AFR as saying:

A few traders told us they see it as a potential risk on the Australia cargoes supply and suspect the paper market will be pushed up on the news…

While the impact on iron ore business shall be limited from what our sources can see for now, the market really seems to be waiting for clarity.

ASX companies to keep an eye on

We’re yet to see any large reaction from ASX-leading iron ore producers to the commodities record high price.

Shares investors might be inclined to shine the spotlight on iron ore miners including Fortescue Metals Group Limited (ASX: FMG), Rio Tinto Limited (ASX: RIO), and BHP Group Ltd (ASX: BHP).

Today, the Fortescue share price is leading the pack with a 1.2% gain. The Rio share price is the next best, showing a 0.6% gain, while BHP is trailing behind with a share price gain of 0.2% today.

For comparison, the S&P/ASX 200 Index (ASX: XJO) is currently up 0.3%.

More reading

• A2 Milk (ASX:A2M) share price falls as China suspends dialogue
• Why ASX miners are cheering record high shipping costs
• The ASX 200 is within an arms reach of all-time record highs
• These ASX uranium shares are surging this year. Here’s why
• a2 Milk and Zip were among the most traded ASX shares last week

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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All eyes will be on the Xero Limited (ASX: XRO) share price next week.

This is because the cloud-based business and accounting software platform provider will be releasing its full year results on Thursday.

What is the market expecting from Xero?

This morning analysts at Goldman Sachs revealed what they are expecting from the company in FY 2021.

According to the note, the broker is forecasting sales growth of 16% to NZ$836 million for the 12 months. Goldman expects this to be driven by a 16% increase in ANZ sales and a 17% lift in International sales.

This is actually a touch under the market consensus estimate of NZ$854 million.

In respect to earnings, its analysts have pencilled in earnings before interest, tax, depreciation and amortisation (EBITDA) of NZ$218 million. This will be a 56% increase year on year and, once again, a touch short of the market consensus estimate of NZ$228 million.

On the bottom line, a net profit after tax of NZ$40 million is expected.

What about subs?

Goldman Sachs is expecting Xero’s positive momentum to continue and is forecasting 317,000 net subscriber additions in FY 2021.

This comprises 222,000 in the ANZ market and 95,000 internationally. The latter is expected to have been impacted by COVID-19 disruptions in the Northern Hemisphere.

And while the broker suspects that its average revenue per user (ARPU) metric may soften, it isn’t concerned by this.

It explained: “We forecast ARPU -2% to NZ$28.5, given geographic & sub mix shift, offset by solid underlying trends (noting the recent price rises will predominantly benefit FY22). We will focus on the growth in Xero platform revenues, which grew +21% in 1H21 but +50% when adjusting for Hubdoc reclassification. Our high frequency trackers show +25-32% annualized growth in the number of apps in Xero’s AU/UK/US ecosystems (as at early April), underpinning the value proposition.”

Is the Xero share price in the buy zone?

Goldman Sachs sees a lot of value in the Xero share price.

It currently has a buy rating and $153.00 price target on the company’s shares.

Based on today’s Xero share price, this implies potential upside of almost 15% over the next 12 months.

More reading

• ASX tech shares are in a world of pain. There might be more to come…
• 3 reasons why Xero (ASX:XRO) is such a high-quality ASX share
• One MASSIVE thing about Tesla and Afterpay that people forget
• 2 quality SaaS ASX shares to buy in May 2021
• Why the Xero (ASX:XRO) share price charged higher in April

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 Xero. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post What to expect from the Xero (ASX:XRO) full year result appeared first on The Motley Fool Australia.

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Finding ASX dividend shares with dividend yields over 6% today is still a hard task. With interest rates at near-zero levels, the market has rushed into dividend shares offering large, inflation-beating yields. After all, there are not too many other investments you can find out right now that offer such a return on your capital.

So here are 3 such ASX dividend shares, all of which are offering a fully franked yield of 6% or greater today

3 ASX dividend shares offering yields of 6% or more today

Telstra Corporation Ltd (ASX: TLS)

Telstra is the first dividend share that has a large dividend yield on offer today. The Telstra share price has actually had a top month or two, rising close to 14% since early March. Investors seem to be loving the idea of splitting up the telco – a plan Telstra announced in March. This share price rise has reduced Telstra’s trailing dividend yield somewhat, but even so, it still offers a relatively large yield compared with other S&P/ASX 200 Index (ASX: XJO) shares. This ASX telco has paid out 16 cents per share in dividends every year for a few years now. On current pricing, that would give us a yield of 4.6% today, or 6.57% grossed-up with Telstra’s full franking.

Australia and New Zealand Banking GrpLtd (ASX: ANZ)

Investors finally got some clarity on ANZ’s dividend this week after more than a year of payout uncertainty thanks to the coronavirus pandemic. Shareholders might have been relieved by the bank’s 45% increase in profits to $2.94 billion that it reported. But I’m sure more attention was on the new ANZ dividend. And it didn’t disappoint. ANZ told the markets that it would be paying a 70 cent per share interim dividend in July, up from the 25 cents per share payout shareholders got in September last year. I’m going to cheat a little with this one. That dividend, if annualised, would give ANZ shares a forward dividend yield of 5.04%, or 7.2% grossed-up with full franking. Just on the bank’s trailing dividend yield, ANZ is offering a grossed-up yield of 5.4%.

AGL Energy Limited (ASX: AGL)

The AGL share price has been a very sad story over the past few years. The energy giant is now at a share price not seen for almost two decades. Concerns over a volatile electricity market, the future of coal and ageing infrastructure assets have all contributed to this brutal sell-off of AGL. But falling share prices has boosted the dividend yield one can expect from AGL today. On current pricing, AGL shares offer a trailing dividend yield of 9.26%. Now the company could well cut this dividend in the future if its cash position continues to deteriorate. But management has committed to paying out essentially all of AGL’s earnings as dividends over the next couple of years. So it seems as though investors will continue to see hefty dividends going forward.

More reading

• ASX tech shares are in a world of pain. There might be more to come…
• ASX 200 up 0.45%: Macquarie full year results & REA Group Q3 update
• Brokers name 3 ASX shares to buy now
• Macquarie (ASX:MQG) share price on watch after posting $3bn profit and 86% dividend increase
• 5 things to watch on the ASX 200 on Friday

Motley Fool contributor Sebastian Bowen owns shares of Telstra Limited. 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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Funds management business, Magellan Financial Group Ltd (ASX: MFG) provided its monthly update on the group’s funds under management (FUM) at the end of April. Despite total funds increasing month over month, shares have moved to the downside.

At the time of writing, the Magellan share price is down 0.7% to $46.76 per share.

Which alone is fairly uninteresting. But the news is paired with nearly two weeks of on-market purchases by Magellan’s chair, chief investment officer, and lead portfolio manager – Hamish Douglass.  

Money where the mouth is

Over the last two weeks, Mr Douglass has loaded up on units in two of Magellan’s listed investment funds. These funds are the Magellan Global Fund (ASX: MGF) and the Magellan High Conviction Trust (ASX: MHH), both of which he manages.

It certainly instils confidence in investors when a portfolio manager is practising what they preach. Prior to the recent splurge, Mr Douglass was already a top shareholder in both funds.

So, just how much has he gobbled up? Well, I took the liberty of adding it all up. Across 10 days of purchasing, the respected investment manager has bought $3.19 million worth of units.

Additionally, the split between the funds was $1.72 million in the Global Fund and $1.47 million in the High Conviction Trust. Such numbers sound like big positions (they are), but it only represents roughly a 5% lift in his prior holding.

Buying while Magellan underperforms ASX

It seems Hamish Douglass is following the great Warren Buffett’s mantra: “Be fearful when others are greedy and be greedy when others are fearful.” The value of units in both funds has substantially underperformed the market over the last year.

The Magellan Global Fund has lost 6% over the past 12 months. A repercussion of half the fund’s portfolio held in cash and defensive equities. That positioning held back gains from its top holdings such as Microsoft Corporation (NASDAQ: MSFT), Alphabet Inc (NASDAQ: GOOG), and Facebook Inc (NASDAQ: FB).

On the positive side, with the recent tech sell-off, Magellan is well-capitalised to load up on some growth companies at a discounted rate. This is exactly what other investors are doing, based on Magellan’s FUM for April.

Most of the $4.373 billion added in the last month went towards Magellan’s global equities. Nearly $3.6 billion went into the group’s global equity investments.

More reading

• 2 reliable ASX 200 shares offering good income
• Top brokers name 3 ASX shares to sell today
• 2 of the best ASX 200 blue chip shares to buy today
• Are ASX ETFs killing the managed fund?
• Could value finally be emerging for the embattled AMP (ASX:AMP) share price?

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. Mitchell Lawler owns shares of Facebook. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (C shares), Facebook, and Microsoft. The Motley Fool Australia has recommended Alphabet (C shares) and Facebook. 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 fund manager has pointed out a very common trap that investors fall into when evaluating shares to buy.

Price-to-earnings (PE) ratio is a metric regularly used by professional and retail investors to determine whether a stock is fairly priced.

The ratio has blown out in the past 10 to 12 years since the global financial crisis, especially among fast-growing growth stocks which have seen their share prices skyrocket.

A classic example of this is REA Group Limited (ASX: REA), which now has a PE ratio of almost 150 after its share price grew from less than $10 eleven years ago to now $156.70. 

Compare this to a value share such as Westpac Banking Corp (ASX: WBC), which is currently going for a PE ratio of around 21.

Over in the United States, electric car maker Tesla Inc (NASDAQ: TSLA) is trading with a PE ratio of more than 660.

So investors could understandably think REA and Tesla shares are very expensive. They would worry how long it would take for earnings to ‘catch up’ with the stock value.

Using PE ratios is ‘lazy’

Forager chief investment officer Steve Johnson warned that PE ratios can be hopelessly “flawed” when analysing rapidly growing companies.

“‘Rocket to the Moon’ trades at 40x earnings, therefore it is expensive: It’s a lazy conclusion (I’ve been guilty),” Johnson posted on Livewire.

“And it can be very wrong.”

Heuristics are mental shortcuts humans use to make judgment easier and less overwhelming. But they can lead us to the wrong answer.

“All of these heuristics, or rules of thumb, have assumptions behind them that need to be probed,” said Johnson.

“Under what scenario is 40 times earnings expensive? What would it take for 40 times earnings to be cheap?”

Businesses that grow for many years can make PE ratios look silly, Johnson added.

“When a company compounds earnings exponentially, the fair value can be a seemingly absurdly high multiple of early-year earnings.”

Companies that always looked expensive via PE ratio

Johnson took the example of Cochlear Limited (ASX: COH) — a company he dismissed in the past, based on a high PE ratio.

Twenty years ago, the medical device firm was trading around the $35 to $40 range, giving it a PE ratio of more than 30.

Cochlear has since grown 15% per annum, according to Johnson. The stock is going for $218.81 on Friday afternoon.

“With the benefit of hindsight, you could have paid 150 times earnings and have still generated a 10% annual return (including dividends).”

Fellow ASX healthcare darling CSL Limited (ASX: CSL) has gone through a similar journey, with investors ignoring it for decades with a perception that it’s ‘expensive’.

But then after persistent growth over many years, 2016 to 2017 saw a change in public opinion.

“Conversation shifted from ‘expensive’ to ‘you pay up for quality’; and more and more investors, both professional and retail, joined the fan club,” said FNArena editor Rudi Filapek-Vandyck last month.

“What helped growing enthusiasm was that CSL shares kept on keeping on. First past $100, then $200, and even $300 was not a bridge too far.”

More reading

• ASX 200 up 0.45%: Macquarie full year results & REA Group Q3 update
• REA (ASX:REA) share price on watch after third quarter results
• Appen (ASX:APX) share price: Is the disruptor becoming the disrupted?
• Macquarie (ASX:MQG) share price on watch after posting $3bn profit and 86% dividend increase
• 2 stellar ASX growth shares rated as buys

Tony Yoo owns shares of CSL Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. and CSL Ltd. The Motley Fool Australia has recommended Cochlear Ltd. and 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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ASX tech shares are in a world of pain today. We are seeing substantial sell-offs in most of the dominant tech shares on the market as we wade through Friday trading. Take Pro Medicus Limited (ASX: PME). Its shares are leading the S&P/ASX 200 Index (ASX: XJO) losses today, down a hefty 8.53% today to $42.03. Or Afterpay Ltd (ASX: APT), which is selling off with a 5.85% loss to $93.59 a share. Xero Limited (ASX: XRO) has lost 2.41% today, whilst WiseTech Global Ltd (ASX: WTC) is down 1.75%. Bucking the trend is Zip Co Ltd (AX: Z1P), whose shares are actually in the green today, up 1.4%. As well as Appen Ltd (ASX: APX), which is enjoying a hefty 5.3% gain today. Saying that Appen dipped to a multi-year low yesterday after a 20% sell-off, so that’s not as good as it seems for Appen shareholders.

So why such a brutal sell-off today for ASX tech shares?

Well, it appears to have been somewhat sparked by a savage sell-off overnight for certain tech shares on the US markets. Shopify Inc (NYSE: SHOP) was down 2.6% last night. Square Inc (NYSE: SQ) lost 3.4%, while Palantir Technologies Inc (NYSE: PLTR) lost 5%, and Coinbase Global Inc (NASDAQ: COIN) shed close to 6%.

So what’s going on here?

ASX tech shares in savage sell-off

Well, it could be a result of renewed inflation concerns. Inflation has been back at the centre of the investing world of late, given the robust economic recovery that many countries, including the United States and Australia, are currently enjoying. Even Warren Buffett mentioned inflation in his recent annual meeting for Berkshire Hathaway Inc. (NYSE: BRK.A)(NYSE: BRK.B).

Buffett didn’t mince words, saying: “We’re seeing very substantial inflation… It’s very interesting. We’re raising prices. People are raising prices to us and it’s being accepted”.

So why are these kinds of ASX tech shares feeling the pain today, while at the same time the ASX 200 is rising? Well, with inflation usually comes interest rate rises. And these companies are by far the most vulnerable to that paradigm, should it occur. That’s because they are still well within their ‘growth phases’. These tech companies typically have a lot of debt and very little present cash flow. That’s fine of course, they are investing for future growth and cash flow.

But right now, with interest rates to near-zero, debt is essentially free. If inflation comes and rates rise, it will no longer be free. That might be what has gotten the market worried about these ASX tech shares today.

More reading

• The Afterpay (ASX:APT) share price breaks below $100
• Why Adore Beauty, Appen, HUB24, & News Corp shares are charging higher
• ASX 200 up 0.45%: Macquarie full year results & REA Group Q3 update
• Brokers name 3 ASX shares to buy now
• Appen (ASX:APX) share price: Is the disruptor becoming the disrupted?

Sebastian Bowen owns shares of Coinbase Global, Inc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Pro Medicus Ltd., Shopify, and Square. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Appen Ltd, Palantir Technologies Inc., WiseTech Global, Xero, and ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Pro Medicus 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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