Thred Launch, page-146

Interesting reading on how the markets will look at technology stocks such as Thred.

By Richard Hemming, Under the Radar Report

Technology stocks are the Ferraris of global sharemarkets because they are able to generate extreme levels of growth with relatively low risk, once they get going.

We are talking about earnings growth in excess of 20 per cent a year over many years, which should involve little in the way of capital expenditure to maintain. When you think about the current 2-3 per cent growth rate of the Australian economy, and the global economy being closer to 2 per cent - to which most companies' prospects are tied - this technology stock feat is even more impressive.

That is why investors are willing to pay price-earnings (PE) multiples in the region of 30 times to gain a stake in these technology companies. Even with the sharemarket trading at relatively high historical levels, this is expensive. The average PE multiple for companies on ASX is about 13 times current year's earnings.

Technology companies trade on high multiples because their business models, if successful, are so revered by investors.

Once these companies get it right, there is little incremental cost in extra product sales, and literally billions of dollars flow to shareholders, in large tech corporations. Look at the big successes such as Microsoft, Apple and Google, and closer to home, internet employment ads specialist Seek, online car retailer Carsales.com and realestate.com.au owner REA. Then there is arguably Australia's biggest corporate success story, the medical research group CSL.