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Tag: Long-Term Investment

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Fintech

PayPal at $58: Is This Aging Incumbent a Value Trap or Opportunity?

source:paypal

Paypal (PYPL) $58 HOLD

Paypal took a beating of 8%, following lackluster results and guidance. Overall the stock has been a chronic underperformer with a negative 30% return in the last 5 years, and negative 24% in the past year. And this too in a booming market.

Most of the underperformance was because of overpricing, Paypal routinely fetched a P/E multiple of over 30, and a P/S ratio of over 6, in the Cathy Woods, buy everything tech, pandemic stimulus era. But with 5 year earnings and revenue growth slowing to the mid teens, the luster wore off, and in 2023, Paypal grew earnings by only 8% and recurring operating income by 11%.

What’s Ahead: In 2024, Adjusted EPS will be flat at $5.1 per share, while revenue is expected to grow 6.5%. Similarly 3 year forecasts are for only 7% revenue and earnings growth. Again, very mediocre growth.

Compared to its growth, Paypal is not unreasonably priced at 12X, Adjusted forward earnings ($60/5.1), and the PEG (Price Earnings / Growth) is 1.7 (12/7). Not that expensive. Block (earlier Square) (SQ) at $67, quotes 40x adjusted earnings, but grows faster at 30% – its PEG is actually lower at 1.33 (40/30)

In my opinion, Paypal’s stock could grow from here, the price is close to rock bottom, but the bigger problem is the whole payment processing sector is a commodity business, there is no product differentiation and Paypal has a lot of competition not just from Square, there’s Zelle, Stripe, Apple Pay and so on… the list gets bigger. It’s like the older, aging incumbent. Stock returns even from $58 could be just about the market average or we could get stuck in a value trap.

There is a new sheriff in town, let’s see how the new CEO Alex Chriss performs, and take another look next quarter.

Categories
Technology

Indie Semiconductor: Why I’m Continuing to Buy Despite Short-Term Volatility

Indie (INDI) I have been continuing to buy in the past two weeks as the stock kept getting lower. The long term story is intact and very strong, but because it’s a loss-making tiny growth stock ($345Mn revenue in 2024), the stock tends to be volatile. Besides, there is a large short interest of over 13%.

Management’s guidance of $1Bn in revenues by 2028, implies a 5 year growth of 35% – they have the $6.4Bn pipeline so I suspect that’s a conservative estimate.

Qualcomm’s auto tech revenues grew over 30% so that’s reassuring but Mobile Eye’s was a disaster, they had too much inventory, so mixed bag there.

I’m very confident of the long term potential, but it is going to be a bumpy ride, as it often is with early stage growth stocks.

Indie reports on 2/22 – will update.

Categories
AI

Palantir (PLTR) Surges 18% to $19.61 Post-Earnings: A Long-Term Buy Opportunity

source:paltnir

*Palantir – $19.61 Post Earning pop of 18%!*

*One can start nibbling at around $19.60 BUT spread out purchases on declines, there should be declines after this post earnings bump and since this is a long term story I still anticipate 15-16% of annual gains over the next 5 years.*

The Reasons for the post earnings pop.

I think the trend of rewarding profitability as in the case of Meta last week seems to be working for Palantir as well. 

Investors are seeing that Palantir is serious about cost control and better margins. With revenue growth in the low 20’s overall, with the main catalyst being commercial customers, Palantir is doing the right thing by focusing on profitability.

Consider these metrics for Q4, which indicate a lot of progress since the days when Palantir didn’t care about profitability….I guess the drop to $6.35 at its low changed their perspective quite a bit

Fourth consecutive quarter of GAAP operating profitability. 11% Margin.

Adjusted free cash flow of $305 million; 50% margin; 731Mn for the year.

Adjusted operating margin of 34%; 28% for the year.

Fifth consecutive quarter of expanding adjusted operating margins 

Fifth consecutive quarter of GAAP profitability; 15% margin

Commercial customer count grew at a very impressive rate of 55% – higher than the revenue of 32%, this is mostly normal for Palantir, they usually land and expand.

While the revenue guidance is just 1-2% higher than the previous estimate, there is  guidance for GAAP profits in each quarter, 40% commercial business growth and adjusted profit margins of 32+% and cash flow of 33% – that is very good.

The AIP (Artificial Intelligence Platform) seems to be getting a lot of attention.

I also suspect multiples and targets will also move up considerably, growth can accelerate from here.

Categories
Cloud Service Providers

Microsoft (MSFT) Hold at $407 – Impressive Earnings, Awaiting Guidance

source

Microsoft (MSFT) Hold $407

Earnings: $2.93 per share, vs. $2.78 per share expected, 33% Higher YoY

Revenue: $62.02 billion, vs. $61.12 billion expected, 18% Higher YoY.

CLOUD DOES WELL – Intelligent Cloud revenue $25.88Bn V 25.29Bn expected, 20% Higher YoY contains Azure cloud infrastructure, SQL Server, Windows Server, Nuance, GitHub and enterprise services. Within that segment, revenue from Azure and other cloud services grew 30%. Analysts polled by CNBC had expected 27.7% growth, and the StreetAccount consensus was 27.5%. The metric for the previous quarter was 29%.

This is impressive growth – but most of it is already in the current price.

I own Microsoft but haven’t had a chance to add Microsoft during this rally, and it’s already up 9% this year.

The guidance will be out during the earnings call starting at 5:30 and will update after the call.

Categories
Enterprise Software

Klaviyo (KYVO): A Promising Buy in Marketing Automation

source

Klaviyo (KYVO) Buy – $27.50 

3-5 Years, Target $50 to $60. Annual Gain – 16 to 20%

Secular growth story – 4-year forecasted revenue CAGR of 32% 

Klaviyo (NYSE: KVYO) is a marketing automation Guru with a 10% stake owned by Shopify (SHOP) with an option to purchase an additional 5%.

Within marketing automation, there are the plain vanilla, single-channel solutions like Mail Chimp and Customer Contact, and one 800-pound gorilla Hubspot (HUBS) which is 3 times its size, and four times its valuation. Taking share from single-channel customers, the smaller Klaviyo is growing much faster at 32% than Hubspot’s 23%.

What’s special about Klaviyo – These are the main competitive advantages:

  • Klaviyo’s integrated data platform integrates customer and automated marketing data.
  • A full stack of tools to provide customers with complete marketing solutions. Single-channel solutions lack data analytics and personalized experience capacity, while marketing solution providers have no segmentation or data capabilities and cloud warehouses have all the data but zero messaging infrastructure and campaign flows.
  • Because of the integration, their targeting is much more precise, scalable, and much faster – this is automated at a large scale and machine-driven for smaller customers to self-operate. Other vendors don’t have that capability or have customers’ data stored across different datasets and databases, which are less user-friendly than Klaviyo’s solution. 
  • Its close association with Shopify, which contributed to 77% of Klaviyo’s revenue; Shopify itself is growing at 22% – so this advantage should endure for a while.

The metrics are impressive 

  • High-value customers grew faster, and customers over $50K per year grew 89%, faster than the overall 24% growth for the company.
  • The Net Revenue Run Rate stayed high at 119%, the 10th quarter with an NRR over 115%, 
  • Cash Flow Margin at 15% of sales
  • Sticky – 73% of orders were from repeat customers

Importantly, with the solid operating cash generation Klaviyo doesn’t need to choose between growth and profitability, which is a huge deal for a startup. It has a cash hoard of $724Mn. With the advantage of already having and generating even more data, M/L could likely become its core competency, which should allow it to dominate this space in the decade ahead.

Klaviyo is still under the radar and a steal at $28 a share.

Categories
Industrials

Investing in Vestis Corp (VSTS): A GARP Opportunity in Uniform and Workplace Supplies

source

Vestis Corp (VSTS) Buy $20

3-5 Years, Target $40 to $45. Annual Gain – 18 to 20%

GARP (Growth at A Reasonable Price)

Vestis (NYSE: VSTS) is a uniform and workplace supplies provider that’s just been carved out of Aramark (ARMK). A competitor to the very successful Cintas (CTAS), now just likely to start hitting the gas. Cintas, priced around $50 on December 13th, 2013, closed at $600 at year-end, 2023 – a twelve-bagger in 10 years! That’s an annual growth of more than 28%! I believe Vestis can emulate Cintas’ story.

These are the main reasons to buy Vestis:

1. Sustainable long-term revenues and income from long-term contracts with 93% of clients renewing each year.

2. Scale – It is the second largest provider in the rental uniforms and industrial supplies market after the $6.9Bn Cintas. Scale matters, making it a barrier to entry for smaller players unable to serve multiple locations. Operational efficiency is the reason for Cintas’ dominance – smaller players can’t do it at the same price as Cintas and Vestis, and it is far more expensive for industrial customers, local government authorities, franchises, hospitals, and restaurants to do it by themselves.

3. Fragmented market – the opportunity is tremendous, the big three players control only 25%, and it being the second largest player there is plenty of room to increase market share.

4. Cross Selling – increasing revenue per customer. Management believes that only 30-40% of Vestis’ product line is being sold and there is ample room for improvement, especially for workspace supplies.

5. Leverage Delivery agents to increase sales – continue leveraging the front line by making salespeople of its delivery agents. Currently, Vestis’ delivery agents sell on 96% of routes. These are valuable assets and will be leveraged more.

Even if Vestis emulates most of Cintas’ story we have a solid winner on our hands.