We all love a compelling growth story, but how do you tell whether you’re buying substance or sizzle? In the fast-paced world of market innovation, distinguishing genuine disruptors from those merely riding the hype wave can be challenging. To delve into this topic, Livewire’s Chris Conway hosted a discussion with Steve Johnson from Forager and Martin Hickson from 1851 Capital.
The conversation, filmed on September 10, 2025, explored the essence of innovation, the traits of true disruptors, and the red flags indicating hype over substance. The experts also shared insights on assessing competitive moats and key metrics in the absence of profitability. Additionally, they provided stock ideas featuring underrated ASX innovators and the best across any market cap.
Defining Innovation in Today’s Market
Innovation is a term frequently used but often misunderstood. Steve Johnson emphasized that innovation is about improving existing processes and offering better solutions. He cited JB Hi-Fi (ASX: JBH) as an example of a company that innovates by selling products cheaply and efficiently, benefiting customers over time.
Martin Hickson, on the other hand, associates innovation with technology and early trend adoption. He highlighted SKS Technologies (ASX: SKS) for its early involvement in the data center trend, leading to significant share price growth. Hickson also mentioned Baby Bunting (ASX: BBN) for its innovative approaches under new leadership.
Assessing Sustainable Competitive Moats
Determining whether an innovative company has a sustainable competitive moat is crucial. According to Hickson, the management team is key, especially in small caps. He stressed the importance of understanding management’s motivations and financial metrics such as cash runway, revenue growth, and competition.
Johnson, a numbers-oriented investor, looks for evidence in financial statements. He values the role of R&D and data as sustainable sources of competitive advantage. Companies that can leverage their scale to invest in innovation often maintain a competitive edge.
Evaluating Cash Burn and Profitability
Many innovators face significant cash burn before reaching profitability. Johnson prefers to see an inflection point in the near future and closely monitors per-customer metrics and lifetime value. He cautioned against models that lose money with increased sales, citing One.Tel as a cautionary tale.
Hickson echoed similar sentiments, focusing on companies nearing profitability. He emphasized the importance of balance sheets, unit economics, and revenue growth in assessing a company’s viability.
Underrated ASX Innovators
Both experts shared their picks for underrated ASX innovators. Hickson highlighted DUG Technologies (ASX: DUG), a company with a promising product called Elastic MP-FWI that aids oil and gas exploration. The product has significantly boosted the company’s order book and growth outlook.
Johnson chose Nanosonics (ASX: NAN), a company known for disinfecting hospital equipment. Despite a slow start, Nanosonics has become profitable and is investing heavily in new products, showing potential for future growth.
Top ASX Innovators Across Market Caps
When asked about the best ASX innovators across all market caps, Johnson pointed to Cochlear (ASX: COH) and ResMed (ASX: RMD), both leaders in the healthcare sector with substantial R&D investments.
Hickson selected Xero (ASX: XRO), an accounting software provider that has grown from a $15 million IPO to a $26 billion market cap. Xero’s success in capturing market share and expanding globally makes it a standout innovator.
The insights from Johnson and Hickson underscore the importance of critical evaluation in identifying true innovators. As the market continues to evolve, investors must remain vigilant in distinguishing between genuine disruptors and those merely capitalizing on market trends.
