The technology industry is one of the best in my opinion, along with the healthcare industry.
It’s easy for a technology business to expand because there are no physical goods that need to be manufactured, stored and transported. Most of the new revenue falls straight to the bottom line. If it has a useful product then it can experience tremendous profit growth.
Here are my two favourite ASX tech shares:
Altium Limited (ASX: ALU)
Altium is one of the world’s leading electronic PCB design software companies and it’s also one of my biggest holdings thanks to its impressive share price gains.
The business is really tapping into the growth of the Internet of Things and the general increasing technological nature of our world.
It delivered an impressive 50% increase to earnings per share in its latest report and I believe there is more growth to come as management have predicted that revenue will grow to US$200 million in a couple of years and the earnings before interest, tax, depreciation and amortisation (EBITDA) margin will grow to 35%.
It’s currently trading at 45x FY19’s estimated earnings.
REA Group Limited (ASX: REA)
REA Group is Australia’s largest property portal business. It owns realestate.com.au, realcommercial.com.au and flatmates.com.au.
The company is able to leverage its leading market position to encourage property owners to pay for higher-costing advertisements. This ad is still a very low cost compared to the overall marketing budget, so REA Group can keep implementing a decent price increase every couple of years.
I also like that the company has made a number of strategic investments into overseas markets like the US, India and South East Asia.
It’s currently trading at 31x FY19’s estimated earnings.
I think both companies are excellent, but both are trading at high multiples of their earnings. They would both need to be at least 15% to 20% cheaper than they currently for me to buy.