Today we have a very speculative idea: take shares in scientific research software maker Clarivate (NYSE: CLVT), in order to earn on the speculative growth of its quotes.
Growth potential and validity: 19% behind 15 Months; 10% per annum during 15 years.
Why stocks can go up: the direction of the company's work is considered promising.
How do we act: we take shares now by 28,51 $.
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
She makes software for those, who is engaged in science and registration of developments.
According to the annual report, the company's revenue is split as follows.
Science — 58,2%. Research databases and related services. Clarivate clients are here universities, governments and pharmaceutical companies.
Intellectual property — 41,8%. Solutions and services for intellectual property management. In particular, this is software for such things, as a patent search, brand monitoring, registration and management of addresses on the Internet, renewal and registration of intellectual property rights.
By type of revenue, the distribution is.
Subscription — 67,9%. Revenue from the sale of the right to use the company's software.
Transactions and Services — 23,1%. Revenue from the sale of the right to use the company's software for a limited period, for example to work on a project, as well as professional advice, which the company provides to its clients.
Revolving revenue — 9%. Service contracts, which the company concludes for a certain period.
Geographically, the company's revenue is distributed as follows:
- North America - 49,4%;
- Europe, Middle East and Africa - 28,6%;
- Asia-Pacific and China - 21,9%.
The company is now unprofitable.
Arguments in favor of the company
НИОКР. As with Simulations Plus, the company is almost guaranteed demand for its solutions, because pharmaceutical companies are in a constant race against time. Pharmaceutical companies are driven forward by the expiration of patents on the drugs they sell, what makes them constantly spend money on new developments. The same factor will attract retail investors to the company.. So I present an article about the company on some Barron’s “How to play the upcoming surge in pharmaceutical spending with this stock”. And this same factor creates the possibility of buying a company by someone bigger..
Not so shameless, how could it be. According to company estimates, the market for analytics and data is approximately $250 billion. Understandably, that these are generally all possible solutions in the analytics market, and not only scientific. That fact, that Clarivate is market-oriented in the broadest sense, talks about, that the company plans to actively spend on expansion. But still, ranking in your target market 0,55% with a capitalization of 17.44 billion dollars, it costs almost 7% market. By IT standards, this is not so brazen. So the company has room to grow.
Diversification. According to company report, none of her clients gives more 1% revenue and 10 the largest customers give only 6% proceeds.
What can get in the way
Can be better. According to company report, share of customers, renewing their subscription, is 91,2%. Strictly speaking, for a subscription-based business, this is a very worthy indicator, Bit I'd like, to make him better.
It should be better. The company is hopelessly unprofitable, what motivates it to issue new shares. This can cause old shares to fall., if demand is insufficient. And all this guarantees the volatility of quotes and threatens bankruptcy in the long term..
The need to expand can ruin the company. The further development of the company depends on its ability to expand through different start-ups. And that's the problem, since this will be done by increasing Clarivate's already high debt burden. According to the latest report, the company has 5.717 billion dollars of debt, of which 1.467 billion must be repaid within a year, and she doesn't have much money.: 399 million on accounts plus 706.879 million debts of counterparties, there are still 13.5 million, postponed for a rainy day. All this, certainly, increases the risk of bankruptcy.
What's the bottom line?
Take shares on 28,51 $, then there are two options:
- wait, when stocks hit all-time highs and rise to 34 $. Think, this option is implemented in the following 15 Months;
- hold stocks to heart and keep following 15 years in the hope, what will come of the company Google in the field of intellectual property.
But still, you should keep in mind the high probability of bankruptcy of the company..
