Why this top fund manager says the risks are now much more to the downside for the surging WiseTech Global and Altium share prices


Writing in its August 2018 monthly update, the top performing Celeste Australian Small Companies Fund said it had previously analysed WiseTech Global (ASX:WTC) and Altium Limited (ASX:ALU) and found it tough to make the valuations stack up.

That was before the WiseTech Global share price jumped 40 per cent in August and the Altium share price soared 37 per cent in the month as the tech high flyers reported results that were very well received by the market.

The fund says eventually all stocks, even tech stocks, have to operate and sell their product into a total addressable market (TAM).

It says based on the recent share prices, Altium is capitalised at $3.6 billion with a TAM of $1 billion, meaning it trades on 3.6x TAM. Similarly WiseTech is capitalised at $6.5 billion with a TAM of $5.2 billion, or 1.25x TAM.

Celeste says that whilst it is possible that addressable markets grow over time, the current valuations imply that both stocks are worth more than the total revenues of their entire addressable markets.

The fund says it thought the risk/reward skew for the stocks was to the downside before the big August share price moves.

Celeste now thinks the downside risk for WiseTech and Altium shares is even more now.

The fund does not own shares in either company. As at the end of August, the largest positions in the Celeste Australian Small Companies Fund included Reece Ltd (ASX:REH), AMA Group (ASX:AMA) and IMF Bentham (ASX:IMF).

The Bennelong Avoca Emerging Leaders Fund recently labelled some of the ASX tech stock darlings as vastly inflated.

WiseTech Global shares don’t look cheap, but these 3 shares do…

Combining countless hours of research with over 30 years of hands-on stock market investing experience, The Capital Club’s founder Bruce Jackson has just published his definitive list of 3 Cheap and Good ASX Stocks for 2018.

WiseTech Global was not one of them, but the list does include one tiny gold mining stock, and the company one top fund manager calls the cheapest stock in the ASX 100.

Find out why these 3 Cheap and Good Stocks could be better buys than WiseTech Global. But you better hurry… these stocks may not stay cheap for long.

See the 3 stocks

Contributors to this article may own shares in some of the companies mentioned in this article. The Capital Club has a thorough disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
Bruce Jackson has 30 years of hands on investing experience. He is passionate about stock market investing, running his own portfolio and SMSF. His focus is on small cap growth stocks. You can contact Bruce at brucej@thecapitalclub.com.au