Originally published by BetaShares
The Australian technology sector has achieved solid performance in recent years, even so that some of the leading companies have received their own acronym – the so-called "WAAAX" shares. As this note shows, our emerging technology hype seems somewhat fresher than in the United States, where the share price performance of the FAANG shares was even stronger and more fundamentally justified.
Australian technology versus the index
The table below shows the top companies in the information technology sector and the US-based NASDAQ-100 Index *. The so-called "WAAAX" shares of Australia include Wisetech (AX :), Afterpay (AX), Altium (AX :), Appen (AX) and Xero (AX :). By contrast, the US "FAANG" shares include Facebook (NASDAQ :), Amazon (NASDAQ), Apple (NASDAQ :), Netflix (NASDAQ 🙂 and Google (NASDAQ :).
Australian technology sector versus Nasdaq 100 index
As is clear, the price / earnings ratios for the top stocks within the local technology sector are generally higher than those for the Nasdaq 100 Index. Also note that while the top 12 stocks (per market capitalization) constitute the entire S & P / ASX 200 technology sector, the 12 largest stocks account for just over half of the Nasdaq 100 index.
Australia's technology sector is generally more expensive, smaller in nature and less diversified than is the case with the NASDAQ-100, mainly because it includes not only technology companies but also companies from a range of other sectors. such as consumer cyclical and health care (see here for more information).
Local technical achievements: bubbler than that of the Nasdaq 100
As can be seen from the graph below, the local technology sector has achieved good price results in recent years, with approximately 11% p.a. composite price revenues from 31 January 2009 to 26 November 2018. On the other hand, the Nasdaq 100 Index on an annual basis has a price return of approximately 19% a.a. during this period.
Price index
Past performance is not an indicator of future performance. You can not invest directly in an index.
What's more, the price performance of the Nasdaq 100 Index was supported by a solid growth of the 17% p.a. period profit in this period, compared with flat revenue growth in the Australian technology sector.
Continuous income
Indeed, all the price technology of the local technology sector since the financial crisis was driven by rising valuations, with the price-forward earnings ratio rising from about 10 in early 2009 to a recent peak of 32.8 months at the end of the month. September 2018. The recent worldwide sales of the share market meant that local technical valuations fell to a (still expensive) 26.4 at the end of November.
Price-forward income
On the other hand, valuations for companies in the Nasdaq 100 Index have been more stable during this period, with the price-forward earnings ratio rising from around 15 in early 2009 to a recent peak of 21 in January earlier this year.
Compared to the performance of the Nasdaq 100 index, the performance of the S & P / ASX 200 technology sector – especially since early 2016 – was much fresher.
Nasdaq 100 merits have been more reliable
Of course, higher local technical valuations may be justified by strong earnings prospects. According to Bloomberg's consensus estimates, it is predicted that the term profit for companies in the local technology sector will increase by healthy 15.6% over the next 12 months. However, as can be seen in the graph below, earnings expectations for the local technology sector have been consistently too high in recent years – on average 12% of the expected annual growth since October 2006, compared to the actual growth in annual profits in this period. only 5%
S & P / ASX 200 technology sector
By contrast, the earnings expectations of consensus analysts for companies in the NASDAQ-100 Index have, on average, remained closer to reality – the actual and expected revenues since October 2006 were both on average about 15% p.a.
Nasdaq 100
All in all, although it is encouraging to see the continued development of the local technology sector, and although there have undoubtedly been some excellent success stories here, in terms of seeking a broad exposure to technological investments, the foundations that underlying American tech giants – as included in the Nasdaq 100 Index – still seem more attractive. Indeed, the recent price sale has lowered the price-for-profit ratio for the Nasdaq 100 index to around 17.0 by the end of November, or nearly the average since 2009 of 16.6. Since the beginning of 2003 the PE ratio has averaged 20.
Although further weaker stock prices can not be ruled out in the short term, the strong business models that underpin the technological giants of America still seem good.
