Investidea: Dynatrace, because this cloud hovers high

Инвестидея: Dynatrace, потому что это облако парит высоко

Investidea: Dynatrace, because this cloud hovers high

Dynatrace IncDT$41.31BuyService in partnership with Tinkoff Investments. Quotes are updated every 15 minutes

Today we have a speculative idea: take shares of Dynatrace cloud business (NYSE: DT), to capitalize on their rebound after a fall.

Growth potential and validity: 20% behind 14 Months; 45% behind 3 of the year; 86% behind 5 years; 13% per annum during 14 years.

Why stocks can go up: because they fell so hard, that the company may well be bought.

How do we act: take now 40,01 $.

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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What the company makes money on

Dynatrace makes cloud management software. The target audience of the company is the IT departments of organizations from various sectors of the economy.

We analyzed the company's business in our previous successful investment idea. The main thing is that the company does so, so that operations in the clouds go well or at least normally.

Important to our history, what, focusing on the company's results for the last 9 Months, 93,87% She earns by subscribing, and the gross margin of this segment is huge - 87,35% from its proceeds.

Arguments in favor of the company

Fell down. The company's shares have almost doubled since October.: with 78,76 to 40,01 $. There are two main reasons for the fall..

Firstly, the company did not meet the cosmic expectations of investors, although if you look at the merits, her reporting was very good. In my opinion, as the reason for the fall, “the report is slightly worse than expected” looks somehow completely disrespectful, so I prefer to ignore this point because of its obvious absurdity.

Secondly, The shares of the company were quite expensive. This argument seems to make more sense., but because of the profitability and predictability of the company, this is no longer so scary.

All in all, I think, that this drop in stocks allows us to hope for a rebound. Moreover, the company is now in a significantly better shape., what it was a year ago, and even cheaper.

Profitability. Company P / E 147,83, what, certainly, quite a few. But, On the other hand, the company breaks even - something that very, very few cloud businesses can boast of. It should also be understood, that the company spends generously on R&D - 16,76% revenue—and even more generously for sales and marketing— 38,53% from proceeds.

Even if with this in mind, it remains profitable, it's a little miracle. Think, soon investors will come to their senses and appreciate it.

Prospects don't go anywhere. Digitalization of businesses and everything, what is possible, will move the company's business forward - and contribute to the influx of investors into its shares.

Pleasant predictability. We do not know the level of revenue retention by the company - how much revenue it squeezes out of its customer base, taking into account the outflow of some of them. But most of her earnings come from subscriptions., what makes her business quite stable.

Can buy. Last time there were fears, that the main shareholder of the company - the Thoma Bravo fund - will refuse to sell it. But the situation has changed somewhat since then..

Confrontation in the cloud computing market has escalated: Amazon fiercely defending its dominant position in the market, and Microsoft is already breathing hot in her ear.

Meanwhile, its cloud segment is developing Google, which regulators can deprive of a fat margin in the advertising business. I think, in light of this, the purchase of Dynatrace by one of the three companies is more than likely: they have a lot of money, and motivation to develop your cloud segment is no less.

В абсолютных числах Dynatrace стоит не так чтобы слишком дорого — почти 11,5 billion dollars, — and it will be a feasible purchase for these companies.

What can get in the way

Price. При текущей цене акций компания окупится примерно за 150 years, а стоит она сейчас как 13,25 proceeds. This, certainly, not very cheap, so stocks may be shaking just because of this.

Accounting. Company 1,121 billion dollars in arrears, out of which 713,155 million needs to be repaid within a year. There is not so much money at the disposal of the company: eat 408,723 million in accounts and 264,293 mln of counterparties' debts.

Basically, it's not that scary. After all, if Dynatrace decides to expand, then finance her deal she, probably, will be largely due to the issuance of new shares - because of which existing shares may fall, if there is not enough demand for new securities. But the company is profitable - bankruptcy can not be expected.

Unrealistic expectations. The fall of the company's shares, which we discussed above, was caused by, among other things, and topics, that the company was a little short on a number of metrics to the bar, set by investors. Unfortunately, this factor must be taken into account..

What's the bottom line?

We take shares now by 40,01 $. And then there are the following options:

  1. wait for growth until 50 $. Think, over the next 14 months we will reach this level;
  2. keep up the level 60 $. Here it is better to count on three years;
  3. wait for stocks to return to level 77 $. It seems to me, this level will be quite achievable within 5 years;
  4. if last time you took shares with an eye on the long term, now you are given the opportunity to buy them after the fall and keep them in your heart for the next 14 years.

Although the company's business is on solid ground, there will still be significant volatility, associated with a high price. So this needs to be understood and accepted.. Or never touch these stocks.