Here’s why you can hold firm with your high flying Afterpay, Wisetech and Altium shares

1010

You never go broke taking a profit, at least according to the well hackneyed stock broker saying. That may be true, but if you cashed in any gains from any of the ASX tech stock high-flyers a year or so ago, that advice has almost certainly seen you miss out on truly life changing returns.

You know the ones; the so-called WAAX stocks:

WiseTech (ASX:WTC) shares and Altium (ASX:ALU) shares have delivered gains of ~140% to shareholders over the past 12 months. Afterpay (ASX:APT) shares have roughly doubled that, while Xero (ASX:XRO) shares almost seem disappointing with ‘only’ a 76% return to shareholders over the same period.

Hindsight is, of course, twenty-twenty. The fact is that these companies — impressive though they all are — were already trading at eye-watering valuations a year ago. It wasn’t necessarily reckless to take some money off the table, especially given most shareholders were already sitting on substantial gains at that point.

The question now, though, for those lucky enough to have held on, is whether it’s time to cash in. Or, indeed, whether those that have been watching with envy from the sidelines should bite the bullet and join the party.

As usual, the answer is; it depends.

The reason these ASX tech shares are trading at such lofty valuations is that the underlying businesses are all delivering incredible growth, and all have plenty of room to run. Consensus guidance suggests, for example, that Wisetech will continue to grow per share earnings at more than 40% per annum over the next three years.

So while Wisetech shares may seem expensive relative to last year’s earnings — which puts the company on a price-to-earnings, or PE, of 148 — the massive growth expected will see that multiple drop significantly in the years ahead.

Sure, Wisetech shares could drop lower in the interim; after all, the market never moves in a straight line.

In fact, the Afterpay share price is presently down about 26% from its recent high, and it has seen more than a few double-digit drawdowns over the years. To date, it’s been a case of one step backwards, ten steps forward! Those that fretted over every dip and sold have made terrible mistakes.

So, if you are a genuine believer in the long-term growth potential of these businesses…

If you’re able to stomach the ups and downs of the market…

And if you have the patience to wait for their potential to be realised, then holding firm is entirely justifiable.

Just don’t expect it to be smooth sailing.

Andrew Page is the founder of Strawman.com, a platform that provides research and recommendations from Australia’s best private investors. Andrew does not hold interests in any of the shares mentioned.

Afterpay 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.

Afterpay 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 Afterpay. But you better hurry… these stocks may not stay cheap for long.

See the 3 stocks

Read Next

Here are 6 of the best dividend stocks on the ASX for 2018 and beyond

Here are 10 ASX 200 shares to beat the traditional blue chips over the next 3 years

5 ASX blue chip shares for 2018 and beyond

Top fund manager names this iconic company as “the cheapest stock in the ASX 100”

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.
Andrew Page
Andrew has over 18 years of experience in financial markets, and is an avid believer in self directed investing. A regular guest on Sky Business, Andrew has a passion for long-term wealth creation via the sharemarket. Andrew is the founder of Strawman.com, Australia's premier online investment club