Today we have a slightly conservative idea: take shares in the manufacturer of devices and services for inventory management of goods Zebra Technologies (NASDAQ: ZBRA), in order to capitalize on the growth in demand for its products.
Growth potential and validity: 12% behind 15 Months; 9% per year for 15 years.
Why stocks can go up: the company's products are in demand.
How do we act: take now 486,73 $.
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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
Revenue of the company, according to the report, divided into two segments.
Asset valuation and tracking — 32%. Segment operating margin — 22,58% from its proceeds. In this segment, the company is engaged in the design and manufacture of printers for the production of labels and other equipment., also provides services in this area.. Zebra also produces consumables for the logistics sector., Provides technical support and maintenance services, makes systems and provides services for asset and personnel management, including software and sensors, manufactures software and devices such as barcode readers for retail inventory management.
Visibility and mobility in the enterprise — 68%. Segment operating margin — 15,38% from its proceeds. In this segment, the company is engaged in the following things: makes electronics for trade and systems, Scanners, also provides services in this area.. The company also makes software for workflow management - and not only in retail and logistics, but also in healthcare.
You can also look at the company's business through such optics:
- Physical Goods - 85,72%. Segment gross margin — 45,85% from its proceeds.
- Software and Services - 14,28%. Segment gross margin — 40,16% from its proceeds.
By country and region, the company's revenue is divided as follows::
- North America - 52,13%. In this region, the US accounts for 51,5%.
- Europe, Middle East and Africa - 33,61%. Here, Germany has 13,37%.
- Asia Pacific is 9,86%.
- Latin America — 4,4%.
Arguments in favor of the company
Online commerce. Internet retail was already showing good growth rates before the coronavirus crisis, but after it began, the sector began to rapidly accelerate. We discussed all this back in October. 2020 in our Prologis idea — and nothing has changed since then. Furthermore, events continue to develop: recently it became known, what Amazon hires as many as 75,000 new employees and pays them 1000 $ bonuses for, that they get a job. As they said in the era of perestroika, "processes are unfolding, unfold!». So I think, what Zebra will be able to capitalize on the growth of online commerce in the medium term: Inventory management and inventory management is a much in-demand craft these days.. The results of the company's latest report speak in favor of my theory.: revenue increased by 28%, and operating profit by 80,13%.
Investors, Attention! Growing online retail will bring the company to the attention of investors, wishing to play out the growth factor of online commerce. Zebra looks like a good indirect way to cash in on this - not yet investing in Amazon with its exorbitant price. On this background, By the way, Zebra is inexpensive: P / It's about 40,75. This is a lot, but not so much.
Interesting purchase. The company may well be bought. It is successful, profitable business, Yes, even in a promising area. Zebra doesn't cost that much in absolute terms: capitalization of $ 26 billion is quite a lifting amount for some large private fund or Warren Buffett.
What can get in the way
Concentration. According to the annual report, three clients of the company in total account for more than half of its revenue: 17,7; 13,9 And 20,7%. Changing relationships with one of them can have a very negative impact on the company's financial statements..
Accounting. According to the latest report, the company has $3 billion in debt, of which 1.546 billion must be repaid within a year. But the company can count on not so much money - 177 million in accounts plus 521 million debts of counterparties. I have no doubt, that Zebra will be able to quickly borrow the required amount at an acceptable percentage, but still such a size of debts cannot but disturb.
What's the bottom line?
We take shares now by 486,73 $, and then there are two options:
- we wait, when they will update the historical highs and will cost 550 $. Think, that we will reach the level we need in 15 Months;
- keep shares next 10 years. Think, that the company will be able to realize its potential precisely in the long run, well, for a longer period they will have time to buy it.
