Today we have a moderately speculative idea.: take shares in security analytics service Cognyte (NASDAQ: CGNT), in order to capitalize on the speculative demand for his shares.
Growth potential and validity: 17% behind 17 Months; 12% per year for 15 years.
Why stocks can go up: combination of war and IT.
How do we act: we take shares now by 23,8 $.
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
It makes risk analytics software for cybersecurity and military intelligence..
The company's website is not available to users from the Russian Federation. We hope, Do you know, what to do.
According to the company's annual report, its revenue is divided into the following segments.
Software — 42,22%. Segment gross margin — 80,97% from its proceeds. This is access to the company's software by subscription and license.
Software Services — 42,84%. Segment gross margin — 76,38% from its proceeds. It's support and stuff..
Professional services and more — 14,94%. Segment gross margin — 22,7% from its proceeds. This education company's clients, consulting services and more.
50,37% revenue can be classified as renewable - customers renew contracts, 49,63% - These are one-time services..
Geographically, the company's revenue is distributed as follows:
- Europe, Middle East and Africa - 85,61%. Of these, Israel 61,81%, Germany - 19,58%;
- America - 11,69%, the US has 10,09% company revenue;
- Asian-Pacific area - 2,7%.
On the stock exchange the company recently: at the beginning of the year, Cognyte ceased to be part of Verint and began to trade as a separate company.
Revenue and profit of the company - million dollars, margin - percentage of revenue
| Revenue | Net income | Profit Margin | |
|---|---|---|---|
| 2018 | 433,46 | 8,73 | 2,01 |
| 2019 | 457,11 | 20,19 | 4,42 |
| 2020 | 443,46 | 14,20 | 3,20 |
Revenue
2018
433,46
2019
457,11
2020
443,46
Net income
2018
8,73
2019
20,19
2020
14,20
Profit Margin
2018
2,01
2019
4,42
2020
3,20
Arguments in favor of the company
Who did not understand, he will understand. The company works at the intersection of the defense industry and cybersecurity. And this is very good: as you remember the idea with Parsons, war is perfectly combined with IT, and governments and corporations are ready to spend a lot of money on cybersecurity, because if you don't spend, it will be worse. Most recent example: remember the Colonial Pipeline hack and the SolarWinds disaster. So Cognyte saddled up a good and interesting topic.. More precisely, two topics: war and hacking. And given the small capitalization of Cognyte at $1.56 billion, this makes its stock a very attractive target for retail investors to pump.. After all, their activity provides already 40% trading in shares of small capitalization companies.
Reliability. According to company report, 88% its proceeds come from contracts with governments of different countries and only 12% belongs to commercial enterprises. This is very good for a number of reasons..
In most governments, as developed, so not very, people work, who are not technically savvy, so they can roll out any amount, and they silently and sadly will pay the bills, not haggling. Often the phrase “such market conditions” works perfectly for officials.
The budget of many states is almost rubber, and although there is always a possibility of non-renewal of the contract, it is orders of magnitude lower than that of the government, than in the case of commercial orders. And the high-profile hacker attacks of recent times have so scared the governments of all countries, that this allows Cognyte to hope for an increase in order volume.
Congratulations, you have P / E. The company is profitable, though 20% its profits come from non-core income, what distinguishes it from some Palantir or most companies, working in the field of cybersecurity. In this context, her P / E 110 does not seem excessive.
Expansion space. The main money the company makes is not in the USA, and that means, that it can expand in the future due to the huge American market.
Probability of purchase. With all the good things, what we learned about the company, it would be logical to assume, that someone will buy it. For example, it could very well be the previously mentioned Palantir: Cognyte as a business is much more interesting.
What can get in the way
Israeli registration. This is an Israeli company, located there 83% its assets and key employees. In connection with recent events in the Middle East, there is a good chance that, that the company may be boycotted.
Concentration. According to company report, she has two unnamed clients, which give a lot of revenue. One has to 16,9%, on the second - 14,1%. The loss of one of them may negatively affect Cognyte's reporting.
Not all at once. The company did not become a beneficiary of the pandemic. And worse than that: its revenue even fell in 2020. All in all, here you should not count on stunning revenue growth rates, typical of many startups.
What's the bottom line?
We take shares now by 23,8 $, then there are two options:
- wait, When will stocks go back up? 28 $, who asked for them back in March, — and it will be noticeably lower than the historical maximum in 30,9 $. Given all the advantages of the company, I think, that we will reach this level in the next 17 Months;
- keep shares next 15 years. This is the most preferred option., because i think, that only over such a long period of time the company will be able to fully realize its potential.
