Shares of Australia's leading telecommunications company, Telstra Corporation Ltd (ASX: TLS), currently trade at 18x last year's per share profits.
For a company expected to grow profits at just 6% per year over the next three years one could argue it's fairly valued.
Indeed, unless Telstra can beat expectations, personally I find it hard to envisage its shares continuing to outperform the market over the next couple of years.
2 promising ASX technology stocks
Fortunately, there's no shortage of promising technology and communications companies listed right here on the ASX. Many are not included in the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).
For example, New Zealand-based cloud accounting software provider, XERO FPO NZ (ASX: XRO), is loaded with potential yet it is unloved by the market.
Xero plans to disrupt the small and medium-sized businesses' accounting space by providing what it calls, "beautiful" software. The easy-to-use software enables business owners to manage their bookkeeping through a web browser, so long as there is an internet connection.
Despite the obvious potential, investors have shunned Xero because it is yet to make a profit. However, this is common for technology businesses which are investing heavily in their future by upgrading platforms and extending their reach across the globe.
If you can stomach volatility and are prepared to invest for the long term, Xero is worthy of your consideration.
At the smaller end of the market is network encryption business, Senetas Corporation Limited (ASX: SEN). The Melbourne-based company specialises in developing encryption devices for physical communications networks at the layer two level.
The company's encryption devices, which are around the size of a small DVD player, are best in class. They have been certified by all four leading international certification authorities and are therefore suitable for use by government and defence departments.
Whilst the lumpiness of its contract wins can make forecasting revenues difficult, if you're prepared to ride out potential volatility in the short term, Senetas looks like a great speculative buy in this Fool's opinion.
