4 ASX tech shares for the 'patient investor': expert

These software companies have shown 'a newfound zeal in cost cutting'.

| More on:
a man leans back in his chair with his arms supporting his head as he smiles a satisfied smile while sitting at his desk with his laptop computer open in front of him.

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

A famous Warren Buffett saying goes "The stock market is a device for transferring money from the impatient to the patient".

But it's fair to say 2022 has tested the nerves of investors in technology stocks.

The S&P/ASX All Technology Index (ASX: XTX) has now lost almost 35% over the past 12 months, and there is not much relief in sight with the Reserve Bank continuing to increase interest rates.

"With the benefit of hindsight, high-growth tech businesses proved to be the proverbial canary in the coalmine," said Forager Funds portfolio manager Alex Shevelev and senior analyst Gaston Amoros.

"The canary went very quiet during most of 2021 and then suffered a catastrophic heart attack in 2022."

Rock-bottom share prices don't match the fundamentals

If you're willing to be patient, though, there are some bargains to be snapped up right now.

"For some of these companies… the low share prices belie the trajectory of the fundamentals."

Shevelev and Amoros took PDF and e-signature tools provider Nitro Software Ltd (ASX: NTO) as a prime example.

"After raising capital at $3.43 a share in late 2021 to fund a European acquisition, [it] saw its share price trade down to almost $1 and has now received a takeover offer from private equity funds at $1.58 a share," they said.

"The company was quick in rejecting the offer as opportunistic and significantly undervaluing the business. We tend to agree with them."

Many tech companies have reined in their spending

The Forager team noted that the new environment of higher interest rates and scrutiny on growth shares has led to many tech companies to change their ways. 

"Software vendors, in particular, keep growing fast and are now displaying a newfound zeal in cost cutting that has pulled cash flow forecasts forward," they said. 

"It is not a coincidence that we are getting opportunistic take-private bids in this space."

Nitro's shares are up almost 50% since the rejected takeover offer, although they are still about a third down since the start of this year.

According to Shevelev and Amoros, Nitro is not the only one tightening its belt and looking ripe for investors willing to ride for the long term.

"There are other good software businesses out there that offer a similar risk-reward profile to the patient investor," they said.

"In our portfolio, we are very happy with our holdings in software vendors Whispir Ltd (ASX: WSP), Bigtincan Holdings Ltd (ASX: BTH), and RPMGlobal Holdings Ltd (ASX: RUL)."

The Whispir share price is down 60.5% for the year so far, while Bigtincan is 42.4% lower and RPM Global has lost 29.1%.

Motley Fool contributor Tony Yoo has positions in Nitro Software Limited, RPMGlobal Holdings, and Whispir Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended BIGTINCAN FPO, RPMGlobal Holdings, and Whispir Ltd. The Motley Fool Australia has positions in and has recommended BIGTINCAN FPO. The Motley Fool Australia has recommended Nitro Software Limited, RPMGlobal Holdings, and Whispir Ltd. 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 young man punches the air in delight as he reacts to great news on his mobile phone.
Technology Shares

Buy alert: Why this broker just upgraded DroneShield shares

Bell Potter is feeling bullish about this high-flying stock.

Read more »

Delighted adult man, working on a company slogan, on his laptop.
Technology Shares

Macquarie forecasts 25% upside for this ASX All Ords software company

The business signed three new contracts in the June quarter.

Read more »

Man looking happy and excited as he looks at his mobile phone.
Technology Shares

DroneShield shares race higher on 480% revenue surge

It was another explosive quarter for this high-flying stock.

Read more »

A man slumps crankily over his morning coffee as it pours with rain outside.
Technology Shares

Why is the Appen share price crashing 15%?

This AI stock is having a tough time on hump day. But why?

Read more »

A young woman lifts her red glasses with one hand as she takes a closer look at news about interest rates rising and one expert's surprising recommendation as to which ASX shares to buy
Technology Shares

WiseTech share price higher on big news

This tech stock has found its new leader.

Read more »

Man holding a calculator with Australian dollar notes, symbolising dividends.
Technology Shares

$10,000 invested in DroneShield shares 5 years ago is now worth…

You might be laughing all the way to the bank if you had done this.

Read more »

Happy woman working on a laptop.
Technology Shares

Up 60% since April, why this $40 billion ASX 200 tech stock remains a 'compelling buy' today

A leading expert believes this $40 billion ASX 200 tech stock has a lengthy growth runway ahead of it yet.

Read more »

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

DroneShield shares sink 7% despite big news

Let's see what's going on with this market darling on Thursday.

Read more »