Security software firm Wynyard Group [NZX: WYN] has soared 90 percent on the NZX this year, leading a rally in tech stocks as investors regain their appetite for risk, buying businesses they hope will offer the same growth prospects and capital gains as Xero.
Xero, the cloud-based accounting company, has increased 24 percent in the past two weeks, building on a 333 percent gain in 2013 that made it the NZX 50 Index's top performer. SLI Systems, which provides search engine navigation for retail websites, is up 10 percent in 2014, GeoOp, which sells a worker management app, has jumped 32 percent and Diligent Board Member Service, a governance software firm, is up 15 percent
As a group, listed tech-related companies have outpaced the NZX 50, which has risen just 3.4 percent this year, extending a two-year advance in what some economists are now calling a 'rock-star' economy. Investors have been returning to equities and in an increasingly online world are focusing on stocks with growth potential.
"Faster and faster internet speeds are helping these companies come through," Rob Mercer, head of private wealth research at Forsyth Barr. "If you turned the clock back to 2001, there were these cool ideas but not the infrastructure. In 2014 we now have the enablers that can take those ideas, and people can see the commercial upside."
Neither Xero, Wynyard, nor GeoOp have turned a profit yet. Xero's $5 billion market capitalisation is backed by annualised sales of just $70.6 million and the tech rally has left some investors struggling to apply conventional valuations on stocks.
"The hard part of it is to put a value on belief," Mercer said. The market has "inflated expectations" of tech companies. "At some point your share price can get ahead of you. Ultimately companies need to be seen delivering on their investment plan."
Diligent has revived after its shares were punished by a mix-up over executive options and its announcement in 2013 that it needs to restate three years of revenue because of miscounting. Xero raised $180 million in new capital in October from high-profile tech investors including PayPal founder Peter Thiel, ensuring it can continue to burn cash as it chases sales growth ahead of profits.
Wynyard said yesterday it had met its sales target for 2013 of $21.5 million. Today, SLI Systems said it notched up more than one billion search queries in December, up 50 percent from a year earlier. Its local customers include Warehouse Group though more than 95 percent of its software-as-a-service sales are offshore.
"The heat that's in the tech sector is a search for new ideas," said Greg Fraser, senior equity analyst at Mint Asset Management. "New ways to make money out of the internet - if it makes using the internet easier, or facilitates business transactions then it is commercially viable."