Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
Is the party over for ASX tech stocks?
It’s mid-May 2021, hopes are swelling that the pandemic may soon be behind us as vaccines are distributed around the globe, and inflation fears are rising as investors look to some form of normality. What investors may find is that it is becoming tougher to generate similar double-digit returns that we saw last year in the midst of COVID-19.
The monthly figures for key parts of the Australia market at the time of writing were:
The S&P/ASX Small Ordinaries Index is down 4.15% from its 19 April high of 3,3331 points to 3,201 points today. In comparison the S&P/ASX 200 Index is only down 0.34% for the same period. Inflation fears appear to be setting in, hitting tech stocks the hardest.
For the same period, the S&P/ASX All Technology Index has dropped from 3,001 points last 19 April to 2,495 points today, a 20.2% fall, suggesting to investors that extreme valuations have come under fire and perhaps they should rethink the valuations given to many of these companies.
The question, as signs of inflation and spiking bond rates increase, is whether local tech and smaller company names can keep up with optimistic expectations that are already priced-in?
Where has the pain been? The worst-performing stocks in May were as follows:
As you can see, they are mainly technology or retail companies. The sector is undergoing a re-rating, with extreme valuations falling back to earth as analysts pare back their profit expectations. We take a look at each of these five companies in a little more detail:
- Ecofibre (ASX: EOF) – The only stock in the list that isn’t a tech stock, Ecofibre breeds, grows, processes and distributes hemp products in the US and Australia. Following a disappointing HY result and subsequent share price fall, the business is looking to turn its fortunes around. In a statement to the ASX, Ecofibre revealed improved momentum in its US business and reaffirmed its profit guidance – for a loss of $1.5 million for the second half of the year – after sales of its nutraceutical products for humans and pets had started to recover.
- MyDeal.com.au (ASX: MYD) – An online retail marketplace focused on household goods such as furniture and homewares, MYD earns the majority of its revenue via a commission charged on the sale price of products sold to its 555,000 active customers (as at 31 July 2020). Morgans has an Add recommendation with a target price of $1.24. The broker says MYD appears to be moving in the right direction, although it has lowered forecasts due to the recent de-rating of peers. It’s an Add with a ‘wait and see’ if the company delivers over the next 12 months.
- Nuix (ASX: NXL) – Nuix provides investigative analytics and intelligence software solutions in Australia and internationally. It was dubbed one of the biggest floats of 2020, with the share price rising well over 50% on the first day of trade. Fast-forward to today, the stock is down almost 40% since its half-year result, which missed prospectus expectations – not a good look for a company that attracted so much attention. Morgan Stanley says the sell-off was too severe and this share price weakness should be considered an opportunity to buy.
- Advanced Human Imaging (ASX: AHI) – AHI is a high-tech, smartphone-based human scanning app, with a diverse range of data-driven applications across multiple industries. It combines proprietary deep-learning models and state-of-the-art image processing techniques that return measurements of body circumference, body composition, multiple health risks, and indicators. The shares were tracking along well and until the end of April, when they fell 50%, from $2.05 to $1.05. There were two reasons for the fall: non-executive director, Nicholas John Prosser, has sold $1.4 million worth of shares, at about $1.10 a share, while brokers also point to an agreement reached with e-Mersion Media as the other reason for the sell off. The agreement is to deliver AHI’s technology via its in-publication portal and range of digital magazines.
- Redbubble (ASX: RBL) – We’ve written about Redbuddle a few times (click here). It was a market darling during COVID-19, but “what goes up must come down.” The online retailer has had a glorious day in the sun, recording some $26 million it generated from the sale of face masks from its launch at the end of April, up to 31 July. July revenue alone was up 132% to $49 million on a constant-currency basis. The shift to online shopping had resulted in annual growth across all core geographies and product categories – all thanks to the sudden increase in shoppers stuck at home under lockdown laws, demanding anything from face masks to stationery. But the good times are over. As expected, this growth can’t go on forever. In a post-pandemic world, things will return to normal and sales at Redbubble will fall back to pre-Covid levels.
