3 ASX tech shares for the post-COVID world

Which high-tech companies can win in an era that could see higher inflation and interest rates threaten growth stocks?
The post 3 ASX tech shares for the post-COVID world appeared first on The Motley Fool Australia. –

There are two contradictory forces bumping heads in the share market currently.

One is the topic du jour, inflation. The negative influence of rising inflation and interest rates on growth stocks has been well-documented.

The other is the ever-increasing influence of technology in our lives. While COVID-19 may have given tech adoption a boost, the trend was already well underway and will continue for years, decades and centuries to come.

The trouble is, many ASX tech shares represent forward-looking businesses that favour low-interest rates.

So how does an investor reconcile these two opposing drivers?

Bell Potter industrials analyst Chris Savage said the post-COVID environment does threaten to entrench the rotation out of growth into value stocks.

“We therefore believe it is now more of a stock picker’s market and are particularly focused on those technology stocks where we believe there is either relative or absolute value,” he said in a memo to clients.

“We continue to be positive on the technology sector in Australia… we believe there are a number of good quality stocks in the sector with reasonable to strong growth outlooks.”

These are the 3 ASX tech shares Bell Potter nominated that could thrive in the post-COVID world.

Adacel could exceed already-upgraded forecasts

Melbourne company Adacel Technologies Limited (ASX: ADA) makes air traffic control systems.

Its shares sat at 97 cents before the market opened on Thursday.

Savage said the company has already upgraded its financial year guidance.

“It now forecasts profit before tax between $7.0 and $7.3 million – and we believe it will at least achieve the guidance if not exceed it.”

The business is sitting on “several million dollars” of cash, he added, and restarted a stock buyback at the start of the year.

“The company has already paid an interim dividend of 2.75c this year and we expect another reasonable dividend at year end,” said Savage.

“The stock looks value on an FY22 PE ratio of around 13x.”

Bell Potter rates Adacel as a buy, with a price target of $1.25.

Teenagers are breaking out

It’s summer in the northern hemisphere and the US is transitioning to post-vaccination life.

This bodes well for Life360 Inc (ASX: 360), according to Savage, which makes an app that tracks teenagers’ movements.

“The company is likely to be a major beneficiary of the widespread rollout of COVID vaccines – particularly in its home market of the USA,” he said.

“This was evident in the Appendix 4C release in late April and we expect this trend to continue over the remainder of the year and into next.”

Life360 shares traded for $6.99 before market open on Thursday. It’s already risen more than 80% this year.

“The stock is not cheap on an EV/revenue multiple of circa 5x in 2022 but… looks reasonable value relative to global comps.”

Bell Potter advises the tech share as a buy, with a price target of $7.

Nitro has ‘reasonable chance’ of upgrade

Shares for document productivity software provider Nitro Software Ltd (ASX: NTO) has only risen 0.94% this year so far.

But this belies the business’ health, said Savage.

“The company has had a strong start to the calendar year with annual recurring revenue at 31 March 2021 up 66% compared to 31 March 2020 and the CEO saying there is ‘accelerating sales momentum’ in the business.”

Savage’s team believes there’s “a reasonable chance” Nitro will upgrade its financial year 2021 guidance around August when the first half results are announced.

“Our forecasts already reflect this,” he said.

“The stock is not cheap on an EV/revenue multiple of circa 7x in 2022 but looks reasonable value relative to global comps.”

Bell Potter rated the stock as a buy, with a price target of $3.75. Nitro shares were $3.22 before the market opened Thursday.

The post 3 ASX tech shares for the post-COVID world appeared first on The Motley Fool Australia.

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More reading

2 exciting ASX tech shares tipped as buys

2 quality ASX growth shares that could be buys in July

Here are the 5 best performing ASX tech shares from FY21

Broker tips Life360 (ASX:360) share price to keep rising after hitting record high
Top ASX shares to buy in July 2021

Motley Fool contributor Tony Yoo owns shares of Nitro Software Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Life360, Inc. The Motley Fool Australia has recommended Nitro Software Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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