My investment mantra is I don’t really care about the direction of the overall market or sectors. I look at the individual company, their fundamentals, and ratios and base my decisions on this and block out all the other noise.
However, I will note that when the market starts to stray too far from financial fundamentals and investors starts chasing easy gains as it is now. I do get concerned as all through financial market history, going back to the tulip bubble in the 1636, it doesn’t end well for the punters chasing the easy cash!
Wisetech Global (ASX:WTC)
WTC currently has a PE ratio of circa 200, which is expensive and indicating a significant amount of future growth is already factored into its share price and investors are expecting substantial growth from WTC. WTC are up 30% since the portfolio inception in April this year.
Recently, WTC announced a $3.0bn strategic acquisition of the US based e2open, a company of similar financial size. e2open reported revenue of US$607.0 million and operating cash flow of US$111.4m, compared to WTC's FY24 revenue of US$683.0m and operating cash flow of US$294.0m. Although both companies are similar in size, WTC is evidently more profitable as indicated by the significantly larger cash flow from operations. However, the acquisition raises questions about whether WTC can maintain its profitability while integrating e2open's operations.
WTC's investor presentation on June 26, 2025, emphasised that this acquisition is strategic rather than a bolt-on. A strategic acquisition aims to create value through synergies and cross/vertical integration over time, whereas a bolt-on acquisition would be EPS accretive from day one and immediately boost the bottom line. This long-term approach may not provide the immediate financial benefits expected by investors, and the integration process could be complex and risky, potentially impacting WTC’s financial performance.
As always with an acquisition the tell-tale sign will be the impact on ROE and ROA. As both these ratios should increase over the next 12-18 months due to the benefits of the acquisition, and the company is more profitable because of it. Time will tell.
Adding to the concerns, WTC has been experiencing turbulence at the board level, with two more non-executive directors announcing they will step down later this year. This instability at the top management level is troubling and adds weight to the decision to sell…
