Today we have a very speculative idea: take shares of the Argentine IT company Globant (NYSE: GLOB), to capitalize on their rebound after a fall.
Growth potential and validity: 16% behind 14 Months; 32% behind 3 of the year; 11% per year for 15 years.
Why stocks can go up: they recently fell, but the company's prospects are very bright.
How do we act: we take shares on 266,18 $.
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.
We love, appreciate,
Investment editorial office
What the company makes money on
It is an Argentine IT company, but it is registered in Luxembourg. Its annual report is rich in technical details.. But in a nutshell, then the company provides the following services in the field of IT to enterprises:
- Consulting.
- Outsourcing of functions of IT departments.
- Development of software solutions.
- Other digital services.
Unfortunately, the company does not give data on the division of revenue by segments.
Revenue of the company by types of clients:
- Banks, finance and insurance — 23,8%.
- Media & Entertainment — 23%.
- Consumer sector, retail and production — 13%.
- Professional Services - 12,7%.
- Technology and Communications — 11,9%.
- Travel & Hospitality — 8,3%.
- Healthcare — 6,6%.
- Other - 0,7%.
Revenue by country and region:
- North America - 70,5%, USA give 68,6% of the entire revenue of the company.
- Europe - 7,6%.
- Asia - 1%.
- Latin America — 20,9%.
Arguments in favor of the company
Fell down. This year, the company's shares fell from an all-time high 354 $ in November to 266,54 $. Think, given the positive aspects, we can expect a rebound in these stocks after such a strong drop..
Successful success. As in the case of Cognizant, Globant will play into the hands of the trend for the digitalization of businesses, as well as the development of IT feeders like artificial intelligence, internet of things and other technical stuff.
Globant also helps the shortage of workers in the US and Europe. As we saw with the example of Tyson Foods, companies choose automation in such conditions, which by default generates demand for the services of companies like Globant, who will be able to advise the customer on the project and help with its implementation and further maintenance.
So how short-term, so Globant's long-term outlook looks bright..
The economy must be economical. From 16 251 the majority of the company's employees are located in developing countries:
- Argentina — 4792;
- Colombia — 3801;
- Mexico - 1979;
- India — 1815;
- Chile — 830;
- Uruguay — 689;
- Peru — 687;
- Brazil — 460.
Considering, what is over 3/4 company contracts in dollars, and the lion's share of its customers and projects in developing countries, Globant successfully copes with the inevitable growth in spending on IT services, paying them more in local currencies if necessary. Local money is not so stable, like american dollar, therefore, the rate increase occurs without prejudice to the company's reporting. Think, the more expensive the work of programmers in developed countries becomes, the more obvious will be the competitive advantage of Globant.
Net reporting. There is enough money in the company's accounts to, to close all its urgent debts, and the amount of debts of its counterparties will be more than enough, to close long-term debts. This is a very important point., because after raising rates and rising borrowing prices, investors will be wary of issuers with large debts..
Can buy. The company is quite attractive, to be bought by someone from a larger competitor like EPAM, Accenture или Cognizant. In absolute numbers, it is not so expensive with its capitalization of $ 11 billion., which makes its purchase not the most unbearable business, especially against the backdrop of major mergers and acquisitions of recent times.
What can get in the way
Concentration. According to the annual report, 10 the largest clients of the company give it 42,2% proceeds. The largest of these, the Disney Parks division, gives 11% Globant revenue. The situation itself, when there are large customers, doesn't look good: a review of the relationship with one of them may affect the reporting of Globant.
That fact, that Globant is heavily affected by the situation with Disney amusement parks - and this division of Disney is not in the best condition due to the pandemic, - I'm even more concerned about: if Disney starts massive park closings, then this may affect the volume of her orders for Globant.
Expensive. Company P / S — 10,13, a P / E — 129,58 - so it looks significantly more expensive than its competitors. In this regard, the stock may shake.
Well, you get the idea.. Considering that, that the company is based in developing countries, there are a number of risks.
Firstly, there are risks of fraud and deception of shareholders: may be, not everyone tells us in the reporting. For example, exaggerate the rate of revenue growth or underestimate the amount of debt.
Secondly, the risks of growing instability in countries are high, where the lion's share of the company's employees is located, — which may also affect her operations.
Can buy. As part of the expansion of the business, the company can start buying different startups, what, certainly, will have a bad effect on her accounting: startups are very expensive these days.
What's the bottom line?
Shares can be taken now by 266,18 $. And then there is 3 course of action:
- wait for growth until 310 $. Think, this level we will be able to reach in the following 14 Months;
- wait for the shares to return to 354 $. Here, probably, better count on 3 years of waiting;
- keep shares next 15 years, to wait for the company to turn into the new Accenture.
But still keep in mind, that this idea is volatile due to the high value of the company's shares.
