One area of the market that delivered some of the strongest results during earnings season was the information technology sector.
This sent the share prices of a number of popular companies soaring to new heights. Is it too late to buy them?
Altium Limited (ASX: ALU)
This software-as-a-service company's shares have been on a tear since it reported half-year revenue growth of 30% to US$63.2 million and first-half EBITDA growth of 51% to US$19 million. I believe that this puts the company well on course to achieve its revenue target of US$200 million by FY 2020. Especially with the Internet of Things market continuing to grow strongly. As connected device almost always require a printed circuit board (PCB) inside them, I expect Altium to experience heightened demand for its PCB design software. Its shares are expensive, but if you are willing to hold them for the long-term then I think you will be rewarded handsomely.
Appen Ltd (ASX: APX)
It is a similar story for Appen's shares. Although they do look close to fully valued now, this has arguably been the case for the last 18 months. But the machine learning and artificial intelligence dataset provider continues to smash expectations every six months when it releases its results. FY 2017 was a huge success with the company delivering a 62% year-on-year lift in EBITDA. Incredibly, this growth is expected to accelerate in FY 2018 with management providing EBITDA guidance of between $50 million and $55 million. This represents year-on-year growth of between 77.9% and 96%. At 30x estimated forward earnings, Appen might actually prove to be great value right now.
ELMO Software Ltd (ASX: ELO)
ELMO is a provider of cloud-based talent management software solutions that listed on the ASX last year. Since listing it has vastly outperformed its prospectus forecasts, leading to investors fighting to get hold of its shares. Like the others, I would argue that its shares are about fair value now on paper. So while this may mean limited upside in the short term, considering the strong demand for its services, the large addressable market, and its positive long-term outlook, I think that in the long-term its shares could provide strong returns for patient investors.
