Today we have an extremely speculative idea.: take shares of the cloud fintech service Blackline (NASDAQ: BL), in order to capitalize on the rebound of stocks after the fall.
Growth potential and validity: 20% behind 14 Months, 44% behind 5 years.
Why stocks can go up: because they fell well.
How do we act: we take shares on 102,31 $.
No guarantees
Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.
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And what is there with the author's forecasts
Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.
So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark: as with the investment idea as a whole, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.
What the company makes money on
This software is for company accountants., allowing to automate and optimize the accounting process. To understand, how it works, you can look at the company's report or see its explanatory video.
Like many similar businesses, the company's revenue is divided into two complementary segments.
Subscription and technical support — 93%. This is access to the company's software for a fee.. Segment gross margin — 85,42% from its proceeds.
Professional services — 7%. This segment includes client consulting and software customization services.. Segment gross margin — 9,17% from its proceeds.
In the US, the company makes 75%, the rest is in other unnamed countries, none of which alone gives more 10% from proceeds.
The company is currently unprofitable.
Arguments in favor of the company
Snow is falling - buy. I never liked ideas in the spirit of "dropped - buy", but since I've been following Blackline for a long time, then I couldn't resist. Over the past four months, these shares have fallen in price by almost a third.. So it is quite possible to count on a rebound of these shares., given the information below.
There is room to grow. Certainly, the company is unprofitable and shamelessly overvalued, but it looks relatively cheap. Blackline takes 1,31% target market with a capitalization of $5.94 billion, and this is 21,21% market. There are far more shameless companies like Appian, so Blackline still has room to grow in terms of quotes: for example, times so twice.
Blackline operates in a promising segment — digitalization of operational business functions, so that is why it can count on revenue growth. Actually, this same growth did not slow down during the coronacrisis collapse. Considering, that business activity at enterprises in America is returning to normal, I think, that we can expect an even more favorable environment for the company in the near future, when enterprises that have emerged from isolation coma begin to spend money on modernizing their accounting.
Buying is not pointless. The company has a high revenue retention rate - 106%. Taking into account all the above points and high rates of squeezing revenue from the existing customer base, which more than cover losses from the departure of some customers, we can hope, that the company will be bought by someone larger.
What can get in the way
Such yourself. The company's report for the last quarter was mixed. Certainly, revenue increased by 20% compared to the same period a year earlier, but losses have more than tripled.
Rising losses guarantee stock volatility, motivate the company to issue new shares, which can negatively affect the value of existing, And, finally, may face bankruptcy in the long run..
They are not alone. Blackline competes with Workiva and the crowd of similar companies: Trintech, Xactly, caseware and so on. This makes the prospects for increasing margins very small..
What's the bottom line?
Shares can be taken now by 102,31 $, and then there are two options:
- wait for growth to 123 $, which will be much less than the historical maximum in 148 $, achieved in February. With all the above pluses, I think, that we will reach the desired level in the next 14 Months;
- keep shares next 5 years, expecting growth to a historic high 148 $. Think, that in this period it is very likely that the company will be bought by someone larger, in this connection, I expect such growth.
