Top 10 tech stocks on the ASX in 2021

Investing in technology

A tech stock refers to any company operating in the technology sector – a space encompassing everything from e-commerce, semiconductors, social media and even cloud computing.

Despite operating across expansive industries, with the likes of Apple being thought of as a consumer-tech stock while Amazon may be viewed as a retail-tech stock – all technology stocks tend to exhibit a number of common characteristics.

Centrally, tech stocks often trade on high earnings multiples; or more recently high sales multiples, they often exhibit above average growth prospects and in many cases have limited physical assets – for instance, Uber owns no cars, Netflix owns no movie theatres, and Amazon, for a long-time at least, owned no retail stores.

The other common thread between many of the world’s leading tech stocks is a physical one: Silicon Valley. Located in the southern portion of America’s San Francisco’s Bay Area, this region, which many ear-mark as the global hub of innovation, is home to many of the world’s most prominent tech companies. Global heavyweights like Apple, Facebook, eBay, Twitter, Netflix and Tesla are all headquartered in the Bay Area.

This geographic exclusivity, mind you, has changed somewhat in recent years – with a number of promising tech stocks emerging across Asia and Australia.

Top 10 tech stocks on the ASX in 2021

With all that considered, below we take a look at the ‘Top 10’ tech stocks currently listed on the ASX, ranked in terms of market capitalisation.

1. Afterpay
2. REA Group
3. Xero
4. Seek
5. Computershare
6. Wisetech
7. Carsales
8. NextDC
9. Pro Medicus
10. Altium

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Afterpay (APT)

A disruptor at heart, Afterpay is a global leader in the fast growing buy now pay later (BNPL) space.

Though the company’s operations were once isolated to Australia – a market where the company continues to dominate – Afterpay has quickly grown its business internationally – with its US business recently overtaking its local one in terms of volume.

Despite the stock providing volatile in the early parts of 2021, Afterpay has continued to notch up an impressive operational performance, as the company continues to grow transaction volumes processed and customer base, at a rapid pace.

Illustrating that point, in April, active global customers stood at 14.6 million, active merchants at 85.8 thousand and the company said it had achieved quarterly (Q3) underlying sales of $5.7 billion – on a constant currency basis.

REA Group (REA)

Sharing a near duopoly with Domain, REA Group represents the premier destination for those looking to buy and sell properties in Australia.

While the coronavirus pandemic dinted Australia’s crowned property market, home prices have since rebounded strongly, with the Australian housing market pushing past a $8 trillion total valuation in early May, according to CoreLogic.

For the three months ending March 31, 2021, REA Group reported:

• Revenue on an ex-broker commission basis of $225.6 million
• Earnings (EBITDA) on an ex-share of profit/ losses from associates basis of $121.9 million
• Free cash flow (FCF) of $65.4 million

Xero (XRO)

In basic terms, Xero is an award winning, cloud-based accounting software business. Buzzwords aside, the business has grown from strength-to-strength in recent years, bolstering its presence in international markets and seeing its customer-base expand rapidly.

For FY21 Xero reported the following:

• 2.7 million paying subscribers and an average revenue per user of (ARPU) of $29.30
• $848.8 million in revenue, up 18%
• Earnings (EBITDA) of $191 million, up 39%

Good growth aside, the sell side remains mixed on Xero, with the stock commanding an average recommendation of Hold, according to Market Index.

Seek (SEK)

Used by both jobseekers and recruiters, Seek represents Australia’s largest online jobs marketplace. The company’s reach however extends beyond Australia, with Seek holding a significant stake in the Chinese jobs business Zhaopin (the business recently cut its stake in Zhaopin from a little over 60% to 23.5%).

Most recently Seek upgraded its full-year FY21 guidance, with the company now expecting:

• Revenue of approximately $1,740 million
• Earnings (EBITDA) of approximately $510 million
• Profits (NPAT) of approximately $150 million, up from prior guidance of $100 million

Computershare (CPU)

Computershare sits at the heart of Australia’s stock market - providing corporate trust, stock transfer and employee share plan services, among other services, to investors and individuals. As the company proudly notes on its website:

‘When we listed on the Australian Securities Exchange in 1994 we had a market cap of AUD $36 million, managed around 6 million shareholder accounts and had about 50 staff. Now we’re a global business with a market cap in the billions, managing over 75 million customer records with 12,000 staff across all major financial markets.’

Most recently Computershare reported the following FY21 interim results:

• Management revenues of $1.1 billion, down 3.2%
• Management EPS of 21.77 cents per share, down 24.8%

An interim dividend of 23 cents per share.

Wisetech (WTC)

A decisively complex company, Wisetech is a ‘global developer of cloud-based software solutions for the international and domestic logistics industries.’ With approximately 17,000 customers across 160 countries using WiseTech’s products, the company’s global presence is unmistakable.

The company said it had made over 1,100 product enhancements in fiscal 2020.

Most recently, Wisetech reported the following interim results:

• Total revenues of $238.7 million, up 16%
• Earnings (EBITDA) of $89.2 million against an EBITDA margin of 37%
• Statutory profits (NPAT) of $44.4 million, down 26%

Carsales (CAR)

Specialising in the sale of vehicles through its online classifieds marketplace, Carsales is arguably one of Australia’s most well-known businesses.

In 2021 the company announced its intention to purchase Trader Interactive, a US-based, vehicle-focused online marketplace. The deal, said Carsales’ Management would help the company expand its international reach and gain exposure to appealing US verticals.

The company recently provided the following updated full-year guidance, on a reported basis:

• Revenue of $422-426 million, implying a growth rate of 7-8%
• Earnings (EBITDA) of $238-242 million, implying a growth rate of 18-20%
• Profits (NPAT) of $130-134 million, implying a growth rate of 8-12%

NEXTDC (NXT)

As technologies proliferate many have theorised that data will become the NEW oil. While many have dismissed such a claim as overly grandiose, to understate the importance of ‘data’ in the 21st century would also be a mistake.

Though NEXTDC (ASX: NXT) is not as flashy as the likes of Afterpay or Xero, it has consistently grown its revenue in recent years and remains well liked by analysts, boasting a Strong Buy recommendation on average, according to Market Index.

As the company describes itself, NEXTDC is centrally involved in ‘enabling business transformation through innovative data centre outsourcing solutions, connectivity services and infrastructure management software.’

Pro Medicus (PME)

Pro Medicus describes itself as a leading medical imaging company. More specifically, the company says it provides a variety of radiology IT software and services to hospitals and other healthcare facilities across the globe.

As part of the company's most recent interim results, PME revealed:

• Revenue of $31.59 million, up 7.8%
• Net profits (NPAT) of $13.54 million, up 12.4%
• A fully franked final dividend of 7 cents per share, up 16.6% on the prior dividend

Trading on 180x earnings, analysts have mixed feelings on the stock, with the company commanding a Hold rating on average, according to Market Index.

Altium (ALU)

Though listed in Australia, Altium's (ASX: ALU) operations span the globe, with its central focus on ‘electronics design systems 3D PCB design and embedded system development.’

Despite being involved in a relatively obscure business: the company has managed to grow its revenues and share price significantly in recent years.

Most recently, Altium reported the following interim results:

• Revenues of $79.9 million, down 3.8%
• Earnings (EBITDA) of $27.0 million, down 15.1%
• 52,157 subscriptions, up 12%
• Earnings (EBIT) of $20.9 million, down 21%

How to buy and trade tech stocks in Australia

Now that we have examined some of the ASX’s ‘Top 10’ tech stocks, we take a look at some of the simple processes investors can use to buy, sell and trade these promising companies.

How to buy tech stocks

Investors, traders and speculators can buy any of the ‘Top 10’ tech stocks we have covered today through IG’s share trading platform by following the four simple steps:

• Open a share trading account with IG
• Log into the IG account and go to the ‘My IG dashboard’
• Fund your newly created share trading account. Open the classic platform on the share trading account, go to the 'finder' panel on the platform, type in and select which growth stock you would like to buy
• Click on the deal ticket: where the ‘on exchange’ option will appear. On exchange means interacting directly with the relevant exchange.

How to trade tech stocks

For those who would rather trade the ‘Top 10’ tech stocks we have examined today, you can use IG’s market-leading CFD platform to capitalise on the price movements – LONG and SHORT – of the stocks we have mentioned today. As with buying stocks, trading tech stocks on IG’s platform can be done in just a few simple steps.

• Create an IG trading account or log in to your existing account
• Look for the tech stock you would like to take a short or long position in
• Choose your position size
• Click on ‘sell’ or ‘buy’ in the deal ticket
• Confirm the trade

Benefits of trading tech stocks

Though there are numerous benefits of simply buying and holding shares – the primary which may be summarised as a ‘set and forget mindset’ – there are a number of benefits to trading CFDs, especially for those who enjoy taking an active approach to investing. Three key benefits include:

• Leverage: Leverage allows investors to gain exposure to a relatively large position in a particular asset – with a reduced initial capital outlay. Use of leverage however may prove a doubled-edge sword for those not implementing appropriate risk management strategies: while it can maximise potential gains reaped by a trade, it can also maximise potential losses.
• Flexibility: Unlike buying an asset outright, CFD trading gives traders the flexibility to speculate LONG and SHORT on the price movements of an underlying asset. This means that traders can easily enter short (SELL) positions if they believe an asset is overpriced and will decline in value.
• Hedging: ‘A hedge is an investment or trade designed to reduce your existing exposure to risk. The process of reducing risk via investments is called “hedging”.’ The most common form of hedging involves taking a position – LONG or SHORT – that potentially offsets one or more other positions you currently have open. Given that IG’s CFD platform gives investors the ability to go long and short with relative ease, hedging strategies can be implemented with little difficulty.

ASX tech stocks in review

Following a strong showing in 2020, which saw stocks across the board experience rapid multiple expansion, global tech stocks in particular have proven volatile in the new year, as investors rotate from value to growth and inflation fears begin to circle.

Indeed, many of Australia’s most prominent tech plays, the likes of Afterpay and Appen have been savaged by the market in the last six months, falling well-off their 52-week highs. And while Afterpay, for example, remains the most valuable tech stock in Australia, Appen has fallen well out of that bracket. A fact which, illustrates the highs and lows that one often witnesses in the world of tech investing.

What is old is new, and what is new is old.

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