New Relic IncNEWR47,54 $
Today we have a very speculative idea: take shares of New Relic application monitoring platform (NYSE: NEWR) after a recent fall, to cash in on the rebound.
Growth potential and validity: 21,5% behind 16 Months; 154% behind 10 years.
Why stocks can go up: the company's shares have fallen too much and it can be bought.
How do we act: buy now for the price 50,49.
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 a cloud-based application monitoring platform.. This is all, what can you say about her: the company's annual report is not rich in details about its business.
A year ago we already had an investment idea for this company, And, at first sight, nothing has changed in her business.
Key moment: now the plot is developing with the company's transition to a new business model - before it received money by subscription, and now wants to receive them in accordance with the consumption of its services by clients.
Arguments in favor of the company
Fell down. Since November 2021, the company's shares have fallen strongly: from 125 to 50,49. The main reason is that the company did not meet the expectations of investors somewhat., stumbling over the difficulty of transitioning to a new business model. But, I think, this fall gives us the opportunity to capitalize on the rebound.
Promising. Main Factors, that play into the hands of the company: digitalization and labor productivity crisis.
Everything is clear with the first: more and more transactions are transferred online, which creates a corresponding burden on developers.
As for productivity, then rising costs and salaries will force employers to invest in software and related solutions - just to keep their gains in marginality.
hold tight. The company's revenue retention rate is 112% - from the existing user base, New Relic extracts enough money, to compensate for the loss of subscribers.
The transition is almost complete. At the moment almost 81% the company's revenue comes from a new business model, based on the frequency of use of its software by customers. It's good, because this process is nearing completion, soon the company will be able to increase margins.
Size and price. The company does not have a very high P / S — 4,36, and a market capitalization of $3.34 billion.
Can buy. Given all of the above and the arms race between the biggest cloud players Microsoft, Google And Amazon, the company may well be bought.
What can get in the way
Accounting. The company has 981.566 million debts, of which 404.672 million must be repaid during the year. She doesn't have a lot of money at her disposal.: there are 245.827 million in accounts and 117.08 million debts of counterparties. There is also, Really, "short-term investments" in the amount of 533.952 million, but big question, will this amount be the same by the time, when the company wants to turn these assets into cash.
All in all, the very fact that a company has tangible debts is a sin, because it is unprofitable and on the nose is an increase in rates and an increase in the price of loans. This will encourage the company to issue new shares, what can cause quotes to fall.
Well, in itself, the unprofitability of New Relic will contribute to the volatility of its shares..
What's the bottom line?
Shares can be taken now by 50,49. And then there are the following options for the development of events.:
- wait for growth until 61 $. Think, we will reach this level in the next 16 Months;
- hold until the stock returns to the level 121 $. Here it is better to focus on 10 years.
The idea is volatile, so don't touch those stocks, if you're not ready for it, that they will be shaken.
