Audinate Group Ltd (ASX: AD8), a prominent player in audio networking technology, has experienced an outstanding 94.45% surge in its stock value by the end of Monday, making it one of the standout performers on the ASX in 2023. As investors assess its remarkable run, the question arises: is it still a wise decision to invest in this hot ASX tech stock?
Shaw and Partners portfolio manager, James Gerrish, sheds light on the opposing forces influencing Audinate's stock price, creating a kind of tug-of-war scenario. On one side, the bull case is supported by shrinking bond yields and strong business performance, while on the other side, a weakening US dollar acts as a bearish factor.
Gerrish acknowledges the challenges and opportunities in this dynamic situation. Despite the stock hitting all-time highs, the high valuation, trading at approximately 105 times estimated FY25 PE, raises concerns about potential setbacks. The elevated valuation implies that much has to go right for the stock to continue its upward trajectory.
"A weakening US dollar could put some pressure on the valuation, but concede that this is a high quality business with strong earnings growth in a sector with a tailwind from lower yields," says Gerrish, recognizing the strengths of Audinate's business.
In response to the heightened valuation, Gerrish's team has taken a cautious approach. While still holding onto some shares, they have trimmed their position, realizing a 65% profit. This move reflects a balanced strategy, taking some profits while retaining exposure to the stock's potential upside.
The fact that Gerrish's team is holding onto a portion of the shares signals a belief in the long-term value of Audinate. This sentiment is shared by many analysts, with five out of six surveyed on CMC Markets currently rating the tech stock as a buy.
The Audinate share price has displayed remarkable growth, surging 161% since May 2022. As investors navigate the complex dynamics influencing the stock, the tug-of-war between bullish and bearish factors will likely continue, shaping the future trajectory of this ASX tech star.