Altium took third place with a price increase of 3002 percent. Altium makes software used primarily by electrical engineers to design 3D printed circuit boards.
Wisetech Global, fourth in the table, develops and delivers software solutions for the global logistics industry. Wisetech is the largest of the IT group. Listed in April 2016, the company is now one of the top 20 companies with a market capitalization of USD 19 billion. In less than seven years, the stock price has increased by 1768 percent.
Building a global competitive advantage
Next is Xero, which provides accounting software to small and medium-sized businesses worldwide. It’s the only one of the five IT companies that still turned profitable with a small loss in its latest half-year results through September 2022. Unsurprisingly, its share price has fallen the most since our market’s high in late 2021.
Technology One develops and installs enterprise resource planning software for a range of industries including education, healthcare and local government and has recently entered the UK market. It delivered the lowest returns of the top 10, with a price appreciation of 888 percent — or 8.9 times your money over 10 years. Still not too shabby.
“Quality Growth” fund managers with a long-term investment horizon are generally bullish on these stocks. They argue that these companies are building a global competitive advantage in their respective software niches and have a major global opportunity to grow into.
The bears of these companies tend to be value managers. Many argue that the high earnings multiples at which these stocks are trading cannot be justified in the current environment of rising interest rates penalizing high-growth stocks around the world – particularly those in the technology space. Valuation aside, many agree that there is significant growth and options ahead for these companies.
The second key observation from the top 10 is the focus on decarbonization. Two of the top 10 performers, Pilbara Minerals and Allkem, are lithium miners. Pilbara is the top performer on the list with a 17,700 percent share price gain over the decade. Allkem came in at number eight with a stock price gain of 983 percent over the decade — or nearly 10 times your money.
Lithium miners were on their knees less than two years ago, but an acceleration in electric vehicle production, partly in response to government regulatory changes, has prompted a rapid reversal in their fortunes. Demand has outstripped supply, sending lithium prices up eightfold from their recent lows.
Pilbara Minerals’ timing was good, as production at its main operations began just as the lithium market was picking up steam. The bulls say the shift toward electric vehicles will continue to support high-margin volume growth for the foreseeable future. Both Pilbara Minerals and Allkem are on the lower end of the cost curve, so even with inevitably correct prices, they’re still profitable and in the best position to gain market share.
The bears say the boom will be short-lived and prices may have already peaked. Share prices are likely to follow the lithium price lower once supply catches up with demand.
This is not a place for the faint hearted. It’s a high-risk area of the market and it’s bound to be a wild ride. Pilbara has been downgraded from a strong buy to a consensus hold by brokers over the past three months following the sharp rise in its share price. Allkem remains classified as a short-term buy.
The remaining three stocks in the top 10 are Fisher & Paykel Healthcare, Aristocrat Leisure and The a2 Milk Company. fisherman & Paykel and Aristocrat Leisure are both considered quality growth stocks and following the recent correction, several quality growth managers believe they are now trading at fair value again. a2 Milk Company has the unenviable title of having experienced the biggest share price decline in the top 10 following the short-lived boom in baby formula sales to China. Shares are down more than 70 percent from their mid-2020 peak of $20.
Perhaps the most important lesson from the list is that over the past 10 years there have been many tens of diggers across the risk spectrum, from high-risk mining stocks to low-risk, high-quality long-term compounders.
The author holds shares in Wisetech Global, Xero, Altium, Fisher & Paykel Healthcare and Aristocrat.
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