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.

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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.

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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.

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