Stock of the day: TechnologyOne
TechnologyOne achieves a 15% profit increase, driven by strong UK sales and Software as a Service growth. With their ambitious revenue goals, the company presents a compelling case for long-term investors.
(AI video summary)
This video was created on 19 November for IG audiences by ausbiz.
ASX code: TNE
TechnologyOne's impressive financial performance
TechnologyOne, a leading software company, recently reported a profit after tax of $118 million for the financial year 2024, marking a 15% increase from the previous year. This growth has been driven by stronger UK sales and its Software as a Service (SaaS) business. Additionally, TechnologyOne declared a full-year dividend of nearly 22.5 cents per share, a 16% rise compared to the prior year.
The company aims to double in size every five years, targeting over $1 billion in annual recurring revenue by the financial year 2030. Consequently, the stock surged by more than 12% in a single day.
Valuation and growth potential
Despite positive financial results, analysts face challenges in assessing TechnologyOne's valuation. The company's price-to-earnings (P/E) ratio is 56 times, significantly higher than other stocks that might trade at three times.
However, investing in high valuation stocks like TechnologyOne can be rewarding if the company consistently delivers better-than-expected results. While the stock appears expensive compared to its historical valuation and analysts' price targets, it still holds potential for outperformance.
Long-term investment strategy
For long-term investors, TechnologyOne presents a compelling opportunity. Despite its high valuation, the company's consistent earnings growth and robust business model make it an attractive 'bottom drawer' stock. This term refers to stocks that investors can hold onto without actively trading, benefiting from long-term growth.
As earnings double, share prices often follow, making TechnologyOne a promising investment for those willing to ride out market volatility. While it may not be a 'screaming buy' due to its current valuation, it remains a strong hold for investors focused on long-term gains.
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