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Small-cap ASX stocks start their journey earlier in their journey than established blue chip stocks, which can offer significant returns. But how do you know which small cap companies will go higher?
selected by a fund manager Gentrack Group Limited (ASX: GTK) share as a major opportunity.
ASX tech share is a software provider for utilities and airports worldwide. It helps our clients to be more efficient and serve their customers better. It also helps utilities “transform” in this “sustainable era” to meet customer demands on how they purchase and consume energy and water. “It’s not about if, but when, utilities will transform to meet these demands,” said Gentrack.
Below is a snapshot of Gentrack’s stock history.
The investment team at NAOS Asset Management said they have a high level of confidence in the business of Gentrack stock as a core investment over the next 3-5 years, believing it will offer significant upside. They cite two main reasons.
Industry tailwinds for small-cap ASX share
NAOS said one of the positive reasons is the “significant” industry tailwind of all meter points globally migrating to new IT systems.
According to NAOS, this represents an opportunity worth more than $1 billion across nearly 200 utility companies.
The fund manager said Gentrack was able to secure new Tier 1 and Tier 2 customers and successfully implement the system in a seamless manner.
Gentrack stock valuation
NOAS said valuations for small-cap ASX stocks are also “very attractive.”
The fund manager noted that Gentrack’s clients are “pretty sticky clients” because they operate in a highly regulated environment.
NAOS analysts believe the business is generating excellent cash flow and achieving good cash conversion. It was noted that Gentrack’s R&D is all expensed (spreading the costs over multiple years, as many other ASX technology stocks do by capitalizing their costs). not).
The fund manager noted that while Gentrack operates primarily in three international markets, the small-cap ASX stock is now executing a global expansion strategy. This is evidenced by the recent signing of a large utility company in Singapore. NAOS is particularly pleased with this foray, as many of his ASX tech stocks only operate in Australia and New Zealand.
The fund manager has revealed how much Gentrak’s stock could go higher in the future.
If management’s projections are correct and GTK generates $175 million in revenue and a 17% EBITDA margin in FY25, GTK’s cash EBITDA would be approximately $30 million. Of note is the business’s net cash position, which can reach nearly $50 million.use Objective Corporation Limited (ASX: OCL) As a comparable software business, OCL with higher recurring revenue levels but similar attributes trades at 29x EV/EBITDA. Even after applying the 30% discount, GTK’s FY25 target valuation is $6.42/share, which we believe is particularly attractive given Gentrack’s current share price.
