Why Software as a Service (SaaS) shares have defensive attributes

SaaS shares have a lot of pleasing characteristics.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The technology sector of the ASX has a lot of exciting options. There are many companies that are quality investment ideas because of how much growth they can achieve.

Some of those companies have achieved market-leading status in Australia and New Zealand, perhaps even on a global scale.

Technology companies are good growth options because of how easily they can expand. Once a company has developed the software and it has the necessary infrastructure for customers then it can quickly roll out the product for little additional cost. Whereas, for example, furniture companies have to make the product, ship it and store it.

Xero Limited (ASX: XRO) has already done the groundwork of setting up its software, a lot of the new revenue now falls straight to the bottom line as it attracts new business owners and accountants, it's growing particularly well in the UK.

Altium Limited (ASX: ALU) has developed its various software offerings and now it only needs to make incremental changes. It is growing globally and the 'Internet of Things' growth will continue to benefit the technology stock.

Citadel Group Ltd (ASX: CGL) has created and acquired various software which it can use to win over other closely-related professions or government bodies.

Software as a Service (SaaS) companies have a lot a growth positive factors to them. But they're also quite defensive.

Businesses pay Xero a monthly subscription fee, that's great for cashflow. Businesses need to continue to do their accounting for management reporting, financial reporting and tax returns regardless of whether the business has had a good year or not.

Government bodies will continue to need software and make decisions whether the economy is booming or stagnating, which should mean reliable revenue for Citadel.

The technological change of the world will continue to happen no matter what the world's GDP figures are, Altium is one of the beneficiaries of this on the ASX.

Foolish takeaway

SaaS companies can offer investors an impressive growth trajectory and perhaps defensive profit profiles as well. There are other examples such as Gentrack Group Ltd (ASX: GTK), Hansen Technologies Limited (ASX: HSN) and WiseTech Global Ltd (ASX: WTC).

Motley Fool contributor Tristan Harrison owns shares of Altium. The Motley Fool Australia owns shares of Altium, Citadel Group Ltd, Hansen Technologies, WiseTech Global, and Xero. The Motley Fool Australia has recommended GENTRACK FPO NZ. 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.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »