26 Jul Hot WAAAX – A value investor’s look at the ASX Tech Sector
Any sensible valuation should be grounded in the present value of free cash flows that a company will produce in the future. As market valuations soar for the ASX “WAAAX” stocks (Wisetech, AfterpayTouch, Appen, Altium, and Xero), it follows that the expectation of free cash flows are equally high. There’s no doubt that these are innovative, high growth businesses. But when share prices accelerate beyond fundamentals, this in fact increases the risk profile, as the growth requirement is pushed to extreme levels, rendering the company less likely to achieve outcomes in line with expectations. Ultimately, this leads us to the fundamental question: what’s already in the price?