This ASX name is guiding to 15% profit growth and has a founder who is buying

Note: This interview was taped Tuesday 10 December 2024.

When markets are rallying, it's easy to do what is obvious - buy whatever has been flying and sit and watch as it keeps going up. 

Much harder, of course, is finding opportunities in the less travelled parts of the market. 

Ellerston's James Barker, however, believes he has found a contrarian gem. This ASX name has a circa half billion dollar market cap, guidance in the market to deliver 15% profit growth on last year, about $125 million cash on the balance sheet, and a PE ratio of around 9x (7x if you back out the cash according to Barker). 

In describing the company, Barker notes that;

"What has changed since 2019 is that while revenues have been broadly flat, profitability has been able to double". 

Add into the mix an 80-year-old founder who owns 50% of the company and has been buying stock on market, and Barker sees more upside on offer.

Which stock is he referring to? Make sure to watch the video to find out.  

Investment strategy and key stocks

Barker is a Deputy Portfolio Manager for the Ellerston Emerging Leaders Fund, which enjoyed a solid 2024. 

Barker emphasized Ellerston's bottom-up stock-picking approach, targeting a three-to-one risk-reward ratio over a three-year period, with a focus on achieving 50% upside and limiting downside to 15%. The strategy eschews resource stocks due to a lack of cash flow-producing assets, instead focusing on sectors where they have expertise.

One standout growth stock Barker identified for 2025 is Qoria (ASX: QOR), a cyber safety software provider. 

Despite past challenges, including an unbalanced balance sheet, Qoria has realigned its cost base and is projected to be cash-flow positive in 2025. Barker highlighted the company’s robust pipeline, potential for profitability, and partnerships with major players like SoftBank.

Another promising sector is the small-cap technology space, with Dropsuite (ASX: DSE) catching Barker’s attention. 

Specialising in cloud and recovery backup services, Dropsuite has shown consistent revenue growth and scalability, positioning itself as a future leader in compliance, security, and backup solutions. Barker draws a parallel with AvePoint, suggesting Dropsuite’s potential to evolve similarly.

Make sure to watch the interview to catch which stock Barker would hold in 2025 if he could only own one, as well as the industry and stocks he would be avoiding.