Today we have a moderately speculative idea.: take shares in IT solutions provider Concentrix (NASDAQ: CNXC) in anticipation of their continued growth.
Growth potential and validity: 15,5% during 15 months excluding dividends; 10% per annum during 15 years including dividends.
Why stocks can go up: because by the standards of IT people, these shares are not very expensive.
How do we act: we take shares now by 176,02 $.
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 provides services for that part of the work of IT departments, related to customer service. How it works, can be viewed on the company's YouTube channel.
According to the annual report of Concentrix, its revenue by customer type is divided as follows:
- Technology and Consumer Electronics - 30,14%.
- Communications and media — 20,21%.
- Retail, travel and online commerce — 16,87%.
- Banking, financial services and insurance — 15,09%.
- Healthcare — 8,32%.
- Other industries - 9,37%.
In the US, the company only makes 22% proceeds, rest 78% falls on other countries: Philippines - 18,39%, United Kingdom — 8,52%, India — 7,43% and others.
But, essentially, the specified geography does not mean anything: these are just addresses of customer departments, often - American companies, to whom Concentrix invoices for the provision of services.
Arguments in favor of the company
There is something to strive for. Digitization of everything and everyone will contribute to the growth of the company - as in the case of HubSpot. Its target market will grow - and with it, its revenue and profit.
Cheap. Company P / S less 2, a P / It's about 23,5. Its capitalization is 9.49 billion. By IT standards, this is a very cheap company., and this fact alone can and should attract many investors to its shares, even if we forget about the prospects of its market. By the way,, Concentrix was until recently part of Synnex. And at the same time the most cost-effective part.
Dividends. The company pays a dollar in dividends per share per year, what gives 0,55% per annum. But under pressure from activist investors, it may well increase payouts by a factor of five., given the stability and favorable business environment. Moreover, if we take into account, that dividends are small now, then their cancellation or reduction should not cause an outflow of investors, which is also a plus.
Can buy. I believe, that, taking into account all of the above, the company may well be bought by one of its larger competitors such as Cognizant or Accenture. Maybe, it will even be some large private foundation. Finally, advantages make Concentrix a very attractive company: a private foundation may well buy it, so that in a couple of years IPO again and earn even more money.
What can get in the way
Duty. The company has a relatively large amount of debt: 2,426 billion dollars, of which 968.2 million must be repaid within a year. She has enough money at her disposal to close urgent debts., but I think, that the company will actively spend on business expansion. We can expect an increase in the debt burden - and this will reduce the likelihood of a company increasing dividends.
Costs-costs-costs. The labor of technical specialists for the company will rise in price, because the necessary specialists are currently not enough in the United States, as an everywhere. And even outsourcing outside the US will not solve the whole problem.: sooner or later, foreigners will have to raise salaries too.
Concentration. The company's five unnamed largest clients give it 26% proceeds. Reviewing the relationship with one of them may negatively affect her reporting..
Corrector's revenge. The company is trading close to all-time highs, and therefore its shares may fall during the next unpredictable stock market crash.
What's the bottom line?
Shares can be taken now by 176,02 $. And then there are two options.:
- wait, when they exceed all-time highs and rise to 204 $. Considering all the positives, I think, that we can expect it within the next 15 Months;
- keep shares next 15 years, as long as the company grows and increases dividends.
