Up 170% in a year, why this under-the-radar ASX tech stock still 'stacks up'

This stock has been catapulted higher. A fund manager is confident on more growth.

| More on:
A young woman carefully adds a rock to the top of a pile of balanced river rocks.

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

The ASX tech stock Catapult Group International Ltd (ASX: CAT) has been one of the most exciting investments in the past year, with a gain of more than 170%. And one fund manager is still bullish on the business.

Created with Highcharts 11.4.3Catapult Group International PriceZoom1M3M6MYTD1Y5Y10YALL10 Jan 202410 Jan 2025Zoom ▾Mar '24May '24Jul '24Sep '24Nov '24Jan '25Apr '24Apr '24Jul '24Jul '24Oct '24Oct '24Jan '25Ja…Jan '25Ja…www.fool.com.au

According to the company, Catapult's products are designed to optimise athlete performance, avoid injury, and improve return to play. It works with more than 4,400 teams in more than 40 sports across more than 100 countries globally and operates "at the intersection of sports science and analytics".

Forager Funds Management is one institution that really likes Catapult and owns it within the Australian Shares Fund. This fund has outperformed the All Ordinaries Accumulation Index (ASX: XAOA) over the past year, five years and ten years. So, it's worth paying attention to what Forager has to say.

Why Forager is optimistic about Catapult shares

in its latest monthly update, the fund manager noted that Catapult recently reported 19% revenue growth for the six months to September 2024. In addition, annualised contract value (ACV) increased 20% to US$97 million after adjusting for currency movements.

Forager noted that the ASX tech stock continued to make progress on consistent profitability.

Of the US$8.1 million revenue increase, 75% added to management's preferred measure of profitability. Forager isn't expecting that profit level (75%) to continue, but the company has guided the overall profit margin is expected to be 30% (excluding share-based compensation) when it hits a certain size. Forager thinks that target is achievable by FY28.

The fund manager also pointed out that Catapult's professional sports team customers were growing in number and scale. For instance, the ASX tech stock now has a market share five times larger than its nearest competitor in the wearable device market. Forager also noted growth had accelerated in the new, more competitive video segment.

Forager highlighted that Catapult was now generating positive free cash flow and had "the capacity to invest heavily in product development alongside its profit margin expansion." The investment team expects Catapult to grow at about 20% per annum for "some time to come."

Is the ASX tech stock good value?

It's possible for fast-growing businesses to become overvalued if the share price shoots higher in a short amount of time.

Forager believes the valuation "stacks up" – it is forecasting Catapult could generate almost US$200 million of revenue by FY28 and more than US$300 million of revenue by 2031.

At that point, the fund manager thinks the ASX share could achieve a profit margin of more than 30% (after share-based compensation) and generate US$80 million of net profit after tax (NPAT).

Forager concluded its thoughts on the ASX tech stock with the following:

It will matter a lot how much growth remains ahead of the business at that point. Even if growth has slowed, it should still be worth 20 times earnings. If it's still growing 20% per annum, it could easily be a 40 multiple. This is a global growth stock.

That would give Catapult a $2-4 billion valuation and could place it inside the ASX 200.

Obviously, the high end of that range is an optimistic scenario, and there is plenty that can go wrong between now and then. Catapult can still be a good investment on more modest assumptions.

Forager suggested both small-cap managers and index funds may start buying the company now that it's profitable and larger.

Motley Fool contributor Tristan Harrison 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 Catapult Group International. The Motley Fool Australia has recommended Catapult Group International. 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

Group of people in a gym high five each other surrounded by gym equipment.
Mergers & Acquisitions

This ASX tech stock is hitting a record high on acquisition news

The market is responding positively to this news. Let's dig deeper into it.

Read more »

A man in a suit face palms at the downturn happening with shares today.
Technology Shares

Guess which ASX 300 share is crashing 17% on shock news

Investors are rushing to the exits on Thursday. Let's find out why.

Read more »

Cheerful boyfriend showing mobile phone to girlfriend in dining room. They are spending leisure time together at home and planning their financial future.
Technology Shares

These were the best ASX 200 tech stocks to buy in May

Shareholders of these shares were smiling last month. But why?

Read more »

A woman smiles as she sits on the bus using her phone and listening to music through headphones.
Technology Shares

Here's why I think these ASX tech shares are buys in June

These stocks have loads of potential.

Read more »

A young man wearing a black and white striped t-shirt looks surprised.
Technology Shares

Why did the Life360 share price rocket 51% in May?

This ASX 200 stock smashed the market last month with an incredible gain.

Read more »

Man ponders a receipt as he looks at his laptop.
Technology Shares

Up 30% since April, are Xero shares still a buy?

Xero shares have surged 30% since April, but can this SaaS leader's share price keep rising?

Read more »

A man and a woman sitting in a technology-related work environment high five each other while the man wears headphones around his neck and the woman sits in front of a laptop.
Share Market News

Strong gains for Wisetech, TechnologyOne, and Catapult amid ASX 200 tech sector lead

ASX technology shares led the market with a 3.85% increase while the ASX 200 lifted 0.88% last week.

Read more »

group of traders cheering at stock market
Technology Shares

Codan shares near an all time high. Can they go higher?

Is there more room for growth for this ASX 200 company? 

Read more »