WAAAX is an acronym we don't seem to hear as much as we used to on the ASX share market.
Inspired by the FAANG (Facebook, Apple, Amazon.com, Netflix and Alphabet (owner of Google) stocks of American fame, WAAAX was the term coined to describe a group of high-flying ASX tech shares.
These shares were – sorry, are – WiseTech Global Ltd (ASX: WTC), Appen Ltd (ASX: APX), Altium Limited (ASX: ALU), Afterpay Ltd (ASX: APT) and Xero Limited (ASX: XRO).
And back in early 2019, they were all the rage.
All had delivered strong capital growth over the previous few years. All were exciting, innovative tech stars that ASX investors dreamed might one day rival the famous FAANGs.
So what happened? Why do we not hear this WAAAX term as much anymore? Has the WAAAX turned to wane?
WAAAX off?
Well, it comes down to divergence. See, it was easy to pile these 5 companies together when their fortunes were intertwined. But today, it's a different story, with the 5 WAAAX shares going in 3 separate directions.
Afterpay and Xero have continued to shoot the lights out. These 2 companies are today trading near record highs.
Appen and Altium haven't really enjoyed the same level of love from investors though. Appen shares have recently had a leg up, but between March 2019 and May 2020 pretty much went nowhere. It's a similar story with Altium.
WiseTech Global though… ouch. This global logistics company is something of a fallen WAAAX angel. After rising by around 360% in the 2 years to September 2019, WiseTech has been in freefall ever since. Over the past 11 months, WiseTech shareholders are down around 50%.
And that's why I think we don't hear much of the 'WAAAX shares' anymore. Perhaps because AAAX (or XAAA) doesn't quite have the same ring to it. Or perhaps ASX investors now accept that we can't really rival the seemingly-indestructible FAANGs over in the US, at least right now.
Which AAAX share is the pick of the bunch?
As you might have picked up, I'm not a huge fan of WiseTech. But the other 4 'AAAXers' I am more partial to. All have long growth runways ahead of them and could be massive companies in 10 years' time if their cards are played right.
If pricing wasn't an issue, Afterpay and Xero would definitely my picks of the bunch. I love Xero's capital-light, software as a service (SaaS) model, which could turn Xero into a free cash flow machine down the road.
Ditto with Afterpay. If Afterpay can continue carving the US and UK markets up and enter the Asian market, I think its growth potential is almost limitless. Especially if you consider its recent partnership with Chinese e-commerce giant Tencent Holdings.
All of this (and perhaps more) is reflected in the current Xero and Afterpay share prices in my view, so I'm still biding my time with these two. But they are both companies I would love to see in my portfolio and sooner, rather than later.
