Investidea: Globant, because everything is always good in IT

Инвестидея: Globant, потому что в ИТ всегда все хорошо

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 duration: 16% for 14 months; 32% for 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. Hopefully, 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 are we writing, Are forecasts and hypotheses, not a call to action. It is up to you to rely on our thoughts or not..

And what about the author's predictions

Research, for example 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 perform better than people, but alas, they work worse.

Therefore, we do not try to build complex models.. The profit forecast in the article is the author's expectations. We indicate this forecast as a guideline. As with the investment 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

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 IT services to enterprises:

  1. Consulting.
  2. Outsourcing of functions of IT departments.
  3. Development of software solutions.
  4. Other digital services.

Unfortunately, the company does not provide data on the division of revenue by segment.

Revenue of the company by types of clients:

  1. Banks, finance and insurance - 23,8%.
  2. Media and entertainment - 23%.
  3. Consumer sector, retail and production - 13%.
  4. Professional services - 12,7%.
  5. Technology and communications - 11,9%.
  6. Travel and hospitality - 8,3%.
  7. Healthcare — 6,6%.
  8. Other - 0,7%.

Revenue by country and region:

  1. North America - 70,5%, USA give 68,6% of the entire revenue of the company.
  2. Europe - 7,6%.
  3. Asia - 1%.
  4. Latin America - 20,9%.
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Инвестидея: Globant, потому что в ИТ всегда все хорошо

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 $. I think, in view of the positive aspects, we can count on the rebound of these shares after such a strong fall.

Successful success. As with Cognizant, Globant will play into the hands of the trend for business digitalization, as well as the development of IT feeders like artificial intelligence, internet of things and other tech stuff.

Globant also helps the shortage of labor in the US and Europe. As we saw with Tyson Foods, companies choose automation in such conditions, which by default generates demand for services from 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 the long-term outlook for Globant looks rosy.

The economy must be economical. Of 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 customers and projects is in developing countries, Globant Copes With Inevitable Rising IT Costs, paying them more in local currencies if necessary. Local money is not as sustainable, like american dollar, therefore, the rate increase occurs without prejudice to the company's reporting. I think, the more expensive the work of programmers becomes in developed countries, 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 her 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 interest rates and raising the cost of loans, investors will be wary of looking at issuers with large debts.

Can buy. The company is quite attractive, because after raising interest rates and raising the cost of loans, investors will be wary of looking at issuers with large debts, Accenture или Cognizant. In absolute terms, it is not so expensive with its capitalization of $ 11 billion., which makes buying it not the most difficult task, especially against the backdrop of major mergers and acquisitions of recent times.

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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 very good: renegotiation of relations with one of them may affect the reporting of Globant.

That fact, that Globant is highly dependent on the situation with Disney amusement parks - and this Disney division is not in the best condition due to the pandemic, - worries me even more: 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. Due to this, stocks can 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 fraud of shareholders: may be, not everything is told to us in the reporting. for example, exaggerate the rate of revenue growth or underestimate the amount of debt.

Secondly, high risks of growing instability in countries, where the lion's share of the company's employees is located, - which may also affect her operations.

Can buy. As part of business expansion, a company can start buying different startups, what, sure, will reflect badly on her bookkeeping: startups are very expensive these days.

What is the bottom line

Shares can be taken now by 266,18 $. And then there is 3 course of action:

  1. wait for growth until 310 $. I think, we will be able to reach this level in the next 14 months;
  2. wait for the shares to return to 354 $. Here, probably, better count on 3 years of waiting;
  3. keep shares next 15 years, to wait for the transformation of the company into the new Accenture.

But still keep in mind, that this idea is volatile due to the high value of the company's shares.

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