You won't find more profitable ASX tech shares than these companies right now

Profitability is taking centre stage, but which tech companies are delivering?

| More on:
A group of people gathered around a laptop computer with various expressions of interest, concern and surprise on their faces. All are wearing glasses.

Image source: Getty Images

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

There are a lot of ASX tech shares that are struggling right now. Rising interest rates have sucked the momentum out of many businesses that haven't been able to prove their profitability.

However, this doesn't mean that all tech shares are unprofitable. In fact, there are a few ASX tech shares that are highly profitable when it comes to their bottom line margins. Yet, despite their wild profitability, all three of the companies below have succumbed to share price pressure this year. Perhaps now is the time to take a closer look.

Here's a look at the most profitable ASX tech shares in the All Ords.

Profit margin royalty among ASX tech shares

Before we get started, to be clear, we are ranking profitability based on the earnings from continuing operations margin for the last 12 months. In other words, margins are what matters here — not the absolute dollar value of profits. In addition, this is only looking at tech companies inside the All Ordinaries Index (ASX: XAO).

Altium Limited (ASX: ALU)

Getting us underway is printed circuit board design software company, Altium. The famous 'WAAAX' group constituent has recently achieved new heights in terms of revenue, but how does its profitability stack up?

Based on its earnings for the last 12 months, Altium is beating out 16 other profitable ASX tech shares in the All Ords. At the end of December 2021, the company had notched up US$41.53 million in earnings — representing an earnings margin of 20.5%.

Recently, Bell Potter reiterated its buy rating on Altium with a price target of $41.25 per share. The current $28.11 share price reflects a 60.6 times price-to-earnings (P/E) ratio. Interestingly, the multiple is still above average despite Altium shares falling 37% in value so far this year.

TechnologyOne Ltd (ASX: TNE)

Founded 35 years ago, TechnologyOne is an enterprise software company that doesn't usually get the same level of media coverage as newer ASX tech shares. Yet, this is a business that has achieved new record profitability each financial year going all the way back to FY2012 — 10 years ago.

In FY21, TechnologyOne stayed on its upward profit trend, posting a record $72.7 million in net profits after tax (NPAT) — this represented a 15% increase from the prior year. Meanwhile, the all-important figure in this write-up is the 23.4% earnings margin.

Analysts are forecasting a nearly 16% growth in earnings in FY22. Currently, the company is trading on a 45 P/E. Notably, the TechnologyOne share price is down 20% year-to-date (YTD).

WiseTech Global Ltd (ASX: WTC)

The ASX tech share finding itself in the top spot has profits in spades. Logistics platform provider WiseTech Global also boasts the largest dollar amount of earnings in the last 12 months of those featured in this article.

A combination of strong top-line growth and the implementation of $20.2 million worth of cost reductions helped WiseTech deliver a strong first half of profits for the period ending December 31 2021. Ultimately, this supported the impressive 25.7% earnings margin.

The WiseTech Global share price trades on a P/E multiple of around 94 times. Since the start of the year, shares in the company have fallen by 30%.

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Altium and WiseTech Global. The Motley Fool Australia has positions in and has recommended WiseTech Global. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Technology Shares

A man holds his head in his hands, despairing at the bad result he's reading on his computer.
Technology Shares

Why is this ASX fintech stock suddenly crashing 22%?

This stock is having a very bad start to the week. What's going on?

Read more »

Three businesspeople leap high with the CBD in the background.
Technology Shares

Guess which ASX All Ords stock is leaping 12% today

Why is this stock having a strong start to the week? Let's find out.

Read more »

A young man working from home sits at his home office desk holding a cup of tea and looking out the window
Technology Shares

Pro Medicus shares higher on $30m contract win

Good news is lifting this high-flying stock on Monday. Let's dig deeper into it.

Read more »

Robot humanoid using artificial intelligence on a laptop.
Technology Shares

The best ASX AI stock to invest $500 in right now

The team at Morgans thinks this is one of the best ways to invest in AI on the ASX.

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Technology Shares

This ASX All Ords stock just crashed 25%! Here's why

Let's find out what is making investors rush to the exits on Thursday.

Read more »

Businessman working and using Digital Tablet new business project finance investment at coffee cafe.
Technology Shares

What's going on with Xero shares today?

The tech stock has made an announcement this morning relating to its CEO.

Read more »

Three analysts look at tech options on a wall screen
Technology Shares

Why did this small-cap ASX tech stock just explode 39%?

Investors are piling into the ASX tech stock on Wednesday. But why?

Read more »

A woman wearing yellow smiles and drinks coffee while on laptop.
Technology Shares

Investors should put these 2 top ASX tech shares on the watchlist

These tech companies have enormous potential, in my view.

Read more »