Today we have a speculative idea: take shares in IT solutions provider Concentrix (NASDAQ: CNXC) in anticipation of their rebound after a strong fall.
Growth potential and validity: 23,5% behind 16 months excluding dividends; 10% per annum during 15 years including dividends.
Why stocks can go up: because they now look criminally underestimated.
How do we act: we take shares now by 167,00 $.
When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
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.
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 in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.
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Investment editorial office
What the company makes money on
Concentrix - IT Solutions Provider, necessary to ensure the process of communication with customers, in particular, these are call centers. Everything about the company's business is described in detail in the previous investment idea - and we will not be able to say anything new about its business, so let's not repeat ourselves.
Arguments in favor of the company
Even better, than one could hope. The company consistently outperforms earnings forecasts, and at the same time, the market rewards her for this in almost no way: last time we made money on these shares 16% less than a month, before they dropped from 205 for no good reason to 167,00 $. In the abyss of the Internet, I found an explanation for the fall: pier, the company did not complete the buyback program for its shares - there are still 474.9 million, which the company could spend for these purposes.
Explanation is not the most illogical: share repurchase plays a significant role. But it completely nullifies the whole point of investing in the stock market.: if the shares of companies are ignored by investors and only the company itself needs, then, I guess, bring money to stock market basically not worth it.
Well, by the way, in 2020, share repurchases in the US stock market fell to a minimum, and the stock market went up a lot anyway—so, I guess, it's not about buying shares.
And since there are no rational explanations for the fall in Concentrix shares, then we can take these stocks and rightfully expect them to rebound, since the main advantages of this company remain the same: increased pressure on digital infrastructure will drive demand for Concentrix services.
Can still buy. It is also very possible for a company to be bought by a larger player in the IT outsourcing industry.: Concentrix is now very cheap in relative and absolute numbers - capitalization of 8.57 billion, P / S — 1,49, P / E — 20,52.
Earnings per share of Concentrix in dollars
| 2к2021 | 3к2021 | 4к2021 | 1к2022 | 2к2022 | |
|---|---|---|---|---|---|
| Current price | 2,37 | 2,49 | 2,99 | 2,85 | 2,83 |
| Forecast | 2,27 | 2,24 | 2,71 | 2,71 | — |
What can get in the way
Concentration. The company's five unnamed largest clients give it 26% proceeds. If relations with one of them deteriorate, this will have the worst effect on the company's financial statements.. It cannot be ruled out, that someone knew about it and arranged a major sale - and a little later we learn about leaving the company of a large client. It would be extremely annoying.
India. Now in India, the salaries of programmers and IT specialists are growing strongly, which will be very bad for Concentrix. Most of her workforce is in ever-developing countries., and the rise in price of the huge pool of Indian labor will definitely affect all outsourcers: Filipinos will soon ask for a raise, Vietnamese.
Debts. Since the first investment idea, the company has spent heavily on expansion, and now its total debt is 3.982 billion. Of this amount, 1.036 billion must be repaid during the year.. And this is good news - the company has enough money at its disposal to close urgent debts: 142,157 million on accounts plus 1.324 billion debts of counterparties. But still, a large debt will scare away some investors in the future.: Rising rates will make debt servicing more burdensome for Concentrix.
What's the bottom line?
Shares can be taken now by 167,00 $. And then there are two options:
- Wait for the stock to return to the level 206 $. Think, we look forward to achieving this goal in the next 16 Months.
- If you took shares last time, to keep them 15 years, now you can buy them.
The company also pays a dollar in dividends per share per year.. Now it gives 0,6% per annum - quite a bit of money, therefore it makes no sense to follow the announcements of the company in this regard. highly unlikely, that even the complete abolition of payments will lead to a significant drop in quotes: the company pays too little dividends.
