Renewed interest in tech stocks has seen some sharp share price rises amongst ASX-listed channel and IT industry companies. This has been accompanied by a complete intolerance of speculative business plans with some sharp falls also being experienced.
It appears that investors are starting to sort the wheat from the chaff several years after the whole sector suffered in the so-called “tech wreck” of 2000 and 2001. Astute traders could have made some small fortunes in the last 6-12 months.
Channel companies such as Data#3, The Volante Group, IBA Health and NetComm amongst many others are trading well above their 52-week lows on the back of solid recent results. Conversely, there are still some bombs dropping as companies failing to live up to their promise reel at figures way below their 52-week highs.
It is not just in Australia either. Last week, the New York Stock Exchange’s NASDAQ index reached an 18-month high as investors sustained their buying spree that has been rallying steadily since the first quarter of this year.
Senior equities analyst with securities dealer CommSec, Gavin Duffy, said investors were now “looking very critically at tech companies” and asking whether they have a sound business proposition or not.
He said that a lot of people got badly burned “last time around” but there was a notable renewed interest in the tech sector of the equity market.
“All boats rise and fall with the tide,” Duffy said. “A number of tech stocks with a genuine business model were definitely oversold during the tech wreck. They fell with the tide. Some of those companies that saw their share price decimated have announced good results over recent months so what you are in fact seeing is a correction to an oversold situation.
“Meanwhile, the market in general has been fairly buoyant and a lot of people who have made quite good money in the leading stocks are re-evaluating the second- and third-tier stocks which is where most of the tech companies reside. So there is a little more money going down to that sector of the market.
“Investors are certainly coming back to the tech sector but they are being a lot more particular about where they place their money.”
Communications hardware provider, Netcomm, is one company that has seen a strong surge in share price in recent times on the back of its first dividend in seven years and good full year results. After seeing its share price fall to as low as $0.06 in the last year it closed on Tuesday last week at $0.26 after being at a 52-week high of $0.27 earlier in the week.
Value-added reseller Data#3 is another that would be pleasing investors at the moment with strong performance being rewarded by a rising share value. It closed last Tuesday at $1.68 just below its 52-week high of $1.75 but significantly above its $0.80 low for the same period.
The Volante Group (also a value-added reseller) has been a little bit more stable but at $1.14 last Tuesday was well up on its 52-week low of $0.91 and close to the 52-week high of $1.21. As the accompanying table shows, IBA Health, Commander Systems and Corporate Express are among those companies that are also doing well at present.
Unfortunately, not all tech stocks listed on the ASX are ascending. Telecommunications and IT hardware distributor CellNet is one that has fallen from grace with investors. It closed on Tuesday at $0.82 little more than half the value of its 52-week high $1.58 and not far from its low for the same period of $0.60.
Managing director for NetComm, David Stewart said that a “lack of investor confidence” in the tech sector and “a very depressed market” had conspired to hold share prices down over the last 2-3 years.
“Companies such as NetComm and plenty of others, have not actually been doing anything wrong,” Stewart said. “It is just that there wasn’t the vibrancy in the market. There was just nothing happening to drive demand and that was reflected in the share prices of many good, viable companies.
“You still have to define the difference between the companies that are maybes, could-bes or just a good ideas and those that have all the basic fundamentals in place and that have products, customers and revenues.
“A lot of the dreamers have crashed but there is a good solid core of companies that fundamentally have a good business, have all the infrastructure in place and have the products but until now they just didn’t have a buoyant market to sell into.
“Those guys are the ones that are continuing to emerge with good results and their share price is starting to go up because investors can see and understand that there is something behind it.”
Volante’s managing director, Allan Brackin, said that the company’s share price had remained comparatively solid because “it pays a very strong dividend” and has good revenues.
He also said that demand was starting to return
“I think there is some speculation out there that the worst of the downturn is over,” Brackin said. “There is a reasonable amount of technology refresh that is going on at the moment. Companies are upgrading their IT infrastructure and Volante is one of the companies that is getting benefits from that.
“Add to that some substantial annuity business from selected outsourcing contracts we have won and very good growth in our applications development business and our fundamentals look good.”
CommSec’s Duffy forecast continued improvement for the tech sector going forward amongst companies that can add value.
“Technology virtually drives the whole economy now,” he said. “In the end the market will sort out who wins and who loses. There will be some real success stories that will come out of the pack and investors are again looking for them. There is no doubt in my mind that they will find them.”
NetComm’s Stewart said that equities investment in the tech sector was no longer driven by “speculation, greed and gambling”. Instead it was “practical, solid business fundamentals” that will drive investor demand and therefore share price rises.
“In my opinion, there are quite a few good opportunities where companies are undervalued at the moment,” he said.