In the world of finance, we come across the word ‘Return’ quite often. You would commonly see this word in any business newspaper or magazine, quoting the sales return of the company was 15%, revenue CAGR was 20% in the last five years and so on.
Generally, we consider two types of return - Absolute Return and CAGR. Absolute return refers to the total return of a company, and we do not consider the time frame. For example, if the revenue of some company A gets doubled from $1 million to $2 million in 5 years, then the absolute return is 100%.
On the other hand, CAGR or compounded annual growth rate is the annualised return. In this case, if the return of the company gets doubled in 5 years, then CAGR will give you the return of the company each year, bringing the total to 100%.
Let’s consider an example for these techniques:
To calculate the absolute return of the company’s revenue, we would use the formula:
Now, multiply the value by 100 to get the value in percentage.
In this case, absolute return is (21-10)/10 = 1.1 or 110%.
As highlighted above, in this case, while calculating the absolute return, we have not considered the time frame. As we do not consider the time frame while calculating the return, it is difficult to use the absolute return model while comparing the return with a peer company. In such a case, we need the annual return of the company to have a clear idea while making an investment decision or comparing the return with other industry players.
The annual return could either be simple annual growth rate or compounded annual growth rate.
Simple annual growth rate (SAGR) is very easy to calculate. For instance, if the return of a company from one year to 6 years has grown by 110%, then SAGR would be 110%/5= 22%.
Here, we have added $ 2.2 million to the value of year 1 to get the value of year 2. Again added $ 2.2 million to next year value to get the year 3 value and so on.
Next is the CAGR, which is the most commonly used method and can be calculated using the formula
Here, n is the time.
Let’s consider the same example discussed above, then the CAGR would be
In this article, we have cherry-picked five technology stocks that have registered growth in their revenue in the past 3 years.
WiseTech Global Limited (ASX: WTC)
The Company is a provider of software solutions to the logistics industry, internationally and its revenue grew at a CAGR of 50% during FY16-FY19.
- WiseTech started its journey in the year 1994 and made its ASX debut in 2016.
- In 2017, the Company made its way amongst ASX 200 players. There were more than 250 CargoWise Partner players actively referring, promoting or deploying the Company’s CargoWise platform. During the same year, WTC was able to speed up acquisitions in countries like the United States, Germany, Italy and Singapore.
- In 2018, the Company made 15 valuable acquisitions across APAC, Europe and the Americas. At that time, its CargoWise platform was available in 30 languages. The Company also rolled out global tracking feature under the platform.
- In 2019, the Company boosted its product development footprint to more than thirty-five development centres at the global level and made entry to the ASX 100 list.
- In 2020, the Company operates as a leading player in the global logistics software industry.
In 1H FY2020, WTC delivered strong growth, with an increase of 31% in revenue and a rise of 160% in net profit after tax as compared to 1H FY2019 ended 31 December 2018.
Appen Limited (ASX: APX)
Established in the year 1996, APX, holding expertise in more than 180 dialects, is a global leader in the development of superior, human-annotated datasets that are necessary for machine learning (ML) and artificial intelligence (AI).
APX has over 1 million skilled contractors, along with the most advanced AI-assisted data annotation platform. The Company delivers the quality, security and speed needed by the leading players in the fields of technology, automotive, financial services, retail and manufacturing, as well as governments, across the globe.
The Company has a presence in Australia, United States, United Kingdom, Philippines and China. Notably, APX is engaged in AI and Machine Learning, which are the emerging technologies and are believed to have a bright future in the coming decade.
In FY2019 ended 31 December 2019, the Company recorded 47% growth in revenue as compared to the previous corresponding period (pcp).
Afterpay Limited (ASX: APT)
Afterpay Limited (ASX: APT) is a technology-driven payment company, aiming at making the purchasing experience of its customers great.
In June 2017, Afterpay and Touchcorp came together and formed Afterpay Touch Group, and they leveraged the strength of each other to improve their customer offerings and provide a better service. Afterpay made its ASX debut in the same month.
FY19 was another transformational year for the Company, as it moved towards fulfilling its mission to become “the most loved way to make payments” in the world. The Company in 2019 achieved a significant milestone, and its team was engaged in establishing as well as expanding its global operations. APX was well accepted in the US market, attracting more than 2.1 million active customers from the region. In the UK, the Company has more than 200k active customers since its launch in May 2019.
In 1H FY2020 ended 31 December 2019, the Company reported a 96% growth in total income and 109% increase in underlying sales on pcp.
Altium Limited (ASX: ALU)
Altium Limited (ASX: ALU) has more than 25 years of experience in Electronic Design Automation (EDA), which makes it one amongst the veteran players in the industry. The Company was founded in 1985 and made its ASX debut in August 1999.
ALU acquired ACCEL Technologies in 2000 to expand its user base. Some of the important acquisitions from 2000 till 2016 made the Company are:
- TASKING- year 2001.
- Morfik Technology- year 2010. The acquisition was made to bolster its drive towards building IoT development tools.
- In 2015, the Company acquired Octopart (world’s no. 1 electronic parts search engine) and Ciiva (cloud-based electronics parts management platform).
- In 2019, ALU acquired Gumstix, focused on embedded hardware development & manufacturing. The new addition to ALU family is expected to make significant contributions towards the Company’s transformative vision for a platform, targeted to aid design to product realisation.
In 1H FY2020 ended 31 December 2019, ALU’s revenue excluding interest increased by 19% on pcp.
Xero Limited (ASX: XRO)
Starting its journey in the year 2006 in New Zealand, Xero Limited (ASX: XRO) is a provider of online accounting software to small businesses and one of the fastest-growing SaaS companies, globally. Its core technology is cloud computing. The Company with more than 2 million subscribers and 2,700+ employees is a leader in the cloud accounting markets of ANZ (Australia and New Zealand) and the United Kingdom.
Helping businesses to enhance cash flow by getting invoices paid quicker, the Company via its cloud-based accounting software enables users to link people with the right numbers anytime, anyplace, on any device. In 2014 and 2015, Xero was recognised as the Most Innovative Growth Company in the world.
In 1H FY2020 ended 30 September 2019, XRO had annualised monthly recurring revenue of $764 million.