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Why I think the Nearmap share price will continue to outperform the ASX

The Motley Fool logo The Motley Fool 3/28/2019 Elton Wang
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Many individuals focus specifically on capital growth of their investment portfolios. CSL Limited (ASX: CSL), Ramsay Health Care Limited (ASX: RHC), and Altium Limited (ASX: ALU) are some of the most commonly held companies in these growth portfolios. Despite these companies having strong growth in its share price, investors should keep an open mind to other growth opportunities that are in the market.

Nearmap Ltd (ASX: NEA) is a good example of an opportunity that fewer investors know of. From the start of 2019, the Nearmap share price traded around $1.50. Nearmap’s share price has recently risen to $2.70 and pushed the $3.00 mark just a couple of weeks ago. Despite this appreciation in its share price, I think Nearmap has still got strong tailwinds going forward.

Why do I think Nearmap’s share price will continue to increase?

Let’s start with an external analysis of Nearmap. Nearmap’s business captures high-quality aerial images using drones and provides the information of value to its customers. Currently, Nearmap’s customers range from development/construction companies, government, telco and many more. Being able to obtain high-quality aerial images at various angles is a critical source of information. Before large scale construction begins in any location, a plan must be established. Nearmap’s business targets this planning process and is currently a market leader in its operations.

Locations of interest to Nearmap are the United States, Australia and New Zealand with an expansion to Canada soon. Nearmap is aiming for an initial population coverage of 60% in its Canada expansion. From the recent half-year results announced to the market, annualised contract value continues to grow while churn rates continue to decrease. This means that there is a higher rate of customers using Nearmap’s software subscription compared to the rate of customers leaving.

Nearmap currently holds a large cash reserve totalling $81.3 million and has strong organic growth in cashflows from its operating activities. Revenue has increased by 45% and gross margin by 82% based on its prior comparative period. With the annualised contract value continuing to increase, I wouldn’t be surprised if Nearmap once again, surprises the market with outstanding figures.

A point I want to reiterate which was highlighted in my recent analysis on Appen Ltd (ASX: APX) is that Nearmap works with a business model which scales well into the future. With data being critical to all organisations, the ability for Nearmap to regularly generate high quality, up-to-date information, can be invaluable in this generation.

Foolish takeaway

Nearmap continues to please its shareholders with its half-yearly and annual reports. Clearly, the capture drones still have many other countries to check out so I would strongly consider adding Nearmap into a portfolio aimed at capital growth.

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Motley Fool contributor Elton Wang owns shares of Nearmap Ltd. The Motley Fool Australia owns shares of and has recommended Nearmap Ltd. The Motley Fool Australia owns shares of Altium and Appen Ltd. The Motley Fool Australia has recommended Ramsay Health Care Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.


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