A lot of share market investors are always hunting for the next 'hot' growth share. Tomorrow's huge winner. However, the reality is the big winners are often right in front of you as leading businesses tend to keep on winning due to competitive advantages that come about via market-leading products for example.
This is a good thing and two software-as-a-service (SaaS) businesses that caught the market's eye this August profit reporting season may have some good years ahead of them yet due to their competitive advantages or strong market positions.
Let's take a look at them.
Pro Medicus Limited (ASX: PME) shares are up 5.3% on a day when the wider S&P/ ASX200 Index (ASX: XJO) has dropped 1.6%.
Pro Medicus nearly doubled its net profit in fiscal 2019 to $19.1 million and has attracted a lot more attention from the professional research community over the last 12 months. Now the likes of Goldman Sachs, UBS, Bell Potter and Morgans generally have positive views on the business, but many admittedly rate it as a 'hold' or equivalent on valuation grounds.
At $31.50 Pro Medicus shares do look expensive and I wouldn't suggest paying this much for the business, but analyst consensus is that it's still capable of producing a lot more long-term profit growth.
Underpinning the opportunity is its market-leading software that it's selling to the world's most respected and medically advanced healthcare institutes and hospitals in the US. Hardly any other members of the S&P/ ASX2o0 can boast of such a strong outlook either, so it's a company to keep an eye on.
Wisetech Global Ltd (ASX: WTC) is another software-as-service business that has a founder that wants to build a moat, network effect, or competitive advantage around it by creating the best cargo logistics delivery platform in the world.
In part the company is going about this via an aggressive acquisition strategy to stretch its network globally and put it further ahead of any competitor seeking market share.
The $10 billion wonder from Sydney's Alexandria backed up fiscal 2019's 57% revenue growth with guidance for EBITDA growth up to 42% on revenue growth up to 32%. WiseTech shares are 0.3% higher on a big down day for the wider market.
Like Pro Medicus the stock looks overvalued using conventional valuation metrics, but often the world's best growth shares in the tech space end up permanently overvalued. Classic global examples being Amazon, Salesforce, or Netflix. Excluding yourself from these kind of businesses on valuation grounds can be a big mistake.
