2 ASX companies that pass the snap test

Great businesses don't just make money – they matter.

It’s easy for investors to get swept up in the excitement of an enticing growth story. Markets thrive on stories – a world-changing innovation, soaring revenue growth, the latest hot sector.

But often, these stories fizzle out and take investors' capital with them.

What truly separates great companies from the impostors is the ability to generate strong business performance, consistently, over the long term. This is something not driven by excitement; it is instead forged through resilience, importance and uniqueness.

While it may lack the spicy headlines, a company that boasts an important and unique product, sustainable competitive advantage and compelling brand identity is a company well-placed to reward shareholders over the long term.

One trick that I have learned to find such companies is to imagine a world where they didn’t exist.

Introducing the “snap test”

Imagine that you snapped your fingers and a company ceased to exist. Gone are its products, its services, its brand.

Would anyone notice? Would anyone feel its absence?

For some companies, the answer is no. If they disappear, its customers will simply switch to someone else. The loss of them would barely cause a ripple.

Others, on the other hand, would leave a lasting hole – if not outright confusion and fear.

It is those companies that fall into the latter category that should be the target for investors looking for quality and resilience.

Some examples of ASX companies that I believe get the snap test tick of approval are:

• Catapult Group (ASX: CAT), whose solutions help many of the world's elite sports teams manage their players' safety and performance.
  
• Cochlear (ASX: COH), which has literally allowed thousands of people to hear.
• PEXA (ASX: PXA), which facilitates around 90% of Australia's property transactions.
• SiteMinder (ASX: SDR), whose software underpins the operations of hotel operators around the world.

We also asked two Australian Fund Managers who they think pass the snap test. These were their responses.

Technology One (ASX: TNE)

Andrey Mironenko, Senior Research Analyst at Alphinity Investment Management, chose enterprise software company, Technology One.

Technology One provides enterprise resource planning software and other mission-critical software primarily for the local government and education sectors in Australia and the United Kingdom. It also provides software to the Australian Federal Government.

According to Mironenko, the sudden disappearance of Technology One would be immediately felt.

“The ability of most large councils as well as many universities and TAFEs in Australia and the UK would be immediately and greatly diminished”.

It would impact almost every part of the operations of these organisations.

“Rate notices won’t be calculated or sent out. Development approvals will take even longer (even if that might not feel possible at the moment). Work orders to fix pavements or parks would stop. Universities wouldn’t be able to enrol students.”

Energy One (ASX: EOL)

Senior Investment Analyst at Wilson Asset Management, Sam Koch, also selected a company that provides mission-critical software – Energy One.

Energy One provides software and around-the-clock support that help energy companies trade electricity and gas, manage prices and contracts, and meet market and regulatory requirements.

Its technology is used by power generators, retailers and energy traders across Australia, the UK and Europe – including systems that manage more than half of Australia’s total energy supply.

“The sudden loss of Energy One would cause serious disruption for its customers and energy markets.”

Energy One’s products and services are relied upon by power companies to trade electricity and gas, manage risks and meet reporting and compliance rules. Without it, these businesses would struggle to operate efficiently, leading to delays, errors and possible instability in wholesale energy markets across Australia and Europe.

Given that Energy One’s products and support are built into its customers’ day-to-day systems, replacing them quickly would be very difficult.

“If Energy One vanished overnight, its absence would be felt immediately – not just by its clients, but by everyone who depends on well-functioning energy markets.”

Which companies do you think pass the test?

Is there an ASX company that you believe passes the “snap test”? We’d love to hear about it in the comments below.