Rudi’s View: How Do We Value The Future?

Rudi's View | May 28 2025

By Rudi Filapek-Vandyck, Editor

Invest in the future is an oft provided free piece of advice to investors, including by yours truly.

After all, when major technological changes descend upon society, it's better to own the manufacturer of the revolutionary automobile instead of having to witness your hard earned withering away in a cheaply priced company that sells carriages for live horse power.

In practice, however, this is far easier said than done.

The decade past has shown plenty of emerging, disruptive challengers that came unstuck eventually and never genuinely recovered. One look at the share price trajectory of 3P Learning ((3PL)) is all one needs to comfortably conclude there have been more disappointed shareholders than otherwise post 2015 ASX-listing.

Experiences from the likes of OFX Group ((OFX)), Appen ((APX)) or Tyro Payments ((TYR)) have not been dissimilar.

Then we have highly promising, though not yet profitable contenders such as Megaport ((MP1)) where share price volatility might be a major source for whiplash sufferings among investors across Australia.

Of course, there is also a small selection of high quality, strong growth achievers just about everyone admires where management at the helm seems to be doing all the right things, and has been for many years on end.

But then you look at the numbers underlying today's share price and your inner voice exclaims OMG!

92 times this year's forecast EPS! A dividend of zero point something percent!

Life aint smooth or easy for investors looking to partake in today's future-building megatrends and as far as the more successful, sustainable success stories on the ASX are concerned; valuation constantly shapes up as a serious barrier to get on board, at least for most investors.

But look what happened --yet again-- last week when an already expensive-looking share price for TechnologyOne ((TNE)) simply moved into an even higher gear to rally 17%-plus following another positive market update.

And it's not as if that rally is only based on market sentiment either, with every analyst covering this company lifting forecasts, valuations and price targets since.

Let's have a look at some of the changes in price targets post interim financials:

-UBS' target lifted to $42 from $33.30 (up by 25%)
-Shaw and Partners' target lifted to $36.60 from $29.50 (up by 24%)
-Morgans' target lifted to $36.85 from $29.90 (up by 23%)

What makes these double-digit jumps in price target even more remarkable is that management's guidance for the full year was only lifted by 1%, to profit growth between 13% and 17% as opposed to 12%-16%.

In comparison: Orica's ((ORI)) interim result earlier in the month arguably represented a much bigger outperformance vis-a-vis market forecasts.

Although its shares have rallied strongly too, FNArena's consensus target only shifted to $21.80 from $21 prior with the forward PE multiple after the rally still below the market average.

Surely, what investors are experiencing is a once-in-a-generation speculative bubble, right?

Example No 1: TechnologyOne

Successful investing in companies such as TechOne starts with the realisation, and acceptance, that good old fashioned Price-Earnings (PE) ratios might not be the best methodology when it comes to valuing high quality, high growth achievers that have all kinds of extra high quality features including stable or growing margins, a loyal customer base, real pricing power, an exciting new product line, excess cash, no asset requirements, low operating costs, and little to no debt.

After all, business models have changed dramatically over the past 2-3 decades and why should a cyclical price-taker with plenty of unpredictable risks and uncertainties be valued in the same manner as companies that almost literally churn out copious amounts of free cash flow, while generating positive growth year-in, year-out?