2 ASX tech stocks I think are the best buys after reporting

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Reporting season can be a good time for investors to gain insight into how companies are doing, management’s plans and what might happen next. And at the moment, I think there are a handful of ASX tech stocks that look very interesting at their current levels.

Not all technology businesses are automatically worthwhile just because they operate in a certain industry.

However, I think there are some attractive opportunities in that sector because of how quickly tech companies can grow because of the intangible nature of what they offer to customers. ASX technology stocks also have the potential to make good profit margins due to how cheap the software can be provided.

With that in mind, after seeing your reports, I really like the look of these two names:

This company provides cloud-based solutions for small businesses and mid-market organizations that help them manage people, processes, payments, and expenses. It operates in Australia, New Zealand and the UK.

One of the attractive features of its business model is that it operates as a software-as-a-service (SaaS) company, earning recurring subscription revenue. This is helpful in a number of ways, including cash flow visibility and keeping customers in your systems.

The result for fiscal year 22 included a lot of growth. Revenue increased 32% to $91.4 million. Earnings before interest, taxes, depreciation and amortization (EBITDA) increased from $6.5 million to $7.1 million. Annualized recurring revenue (ARR) increased 29% to $108.2 million. ELMO expects ARR to grow organically between 24% and 29% to a range of $134 million to $140 million.

It has a high gross profit margin of around 90% and the business seems scalable, meaning your other profit margins can increase as you grow. The ASX tech stock is expected to break even on cash flow in FY23.

I think the business has a good opportunity for profitable growth in the coming years, particularly as it grows geographically, adds new modules and improves its margins.

Dancer Technology Investments Ltd (ASX: BTI)

In my opinion, this is one of the most interesting ASX tech stocks on the stock market.

Bailador describes itself as a growth equity fund focused on the information technology sector. Invests in private technology companies in the “expansion stage”.

There are a number of characteristics Bailador’s investment team is looking for: founder-led, two to six years in operation, international revenue generation, “huge” market opportunity, and the ability to generate repeat revenue.

You want to have eight to twelve positions in your portfolio. Dancer currently has eight names in the portfolio, these are: Siteminder Ltd. (ASX: SDR), Straker Translations Ltd (ASX: STG), InstantScripts, Rezdy, Access Telehealth, Nosto, Mosh, and Brosa.

Three of those positions are worth $10 million in the ASX tech stock portfolio.

Siteminder, the portfolio’s largest investment position, is a “world leader in hotel channel management and distribution solutions for online reservations.”

InstantScripts is a “digital platform that enables convenient access to high-quality healthcare and routine prescription medications.”

Rezdy is an online channel manager and booking software platform for tours and activities.

After selling all of his stakes in Instaclustr and SMI for around $140 million, he now has a lot of cash. I’m excited about what Bailador could do with this cash, other than just pay dividends.

Paul Wilson, co-founder and managing partner of Bailador, said:

There remain a significant number of very high-quality expansion-stage technology companies in Australia. Capital market movements do not change that. The difference is that there is currently less capital chasing those companies and the valuations are more reasonable. This environment gives us the opportunity to access these quality companies at reasonable valuations, and we are well positioned to do so.

As of July 31, 2022, Bailador’s Net Tangible Asset (NTA) per share was $1.94. Bailador’s stock price is at a 20% discount, but stock prices change all the time.

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