Today we have a speculative idea: take shares in Israeli technology company NICE Systems (NASDAQ: NICE), to capitalize on the rebound of her shares.
Growth potential and validity: 17% behind 14 Months; 41,5% behind 2 of the year; 12% per year for 15 years.
Why stocks can go up: because they recently fell.
How do we act: we take shares now by 222,68 $.
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
According to the company's annual report, its revenue is divided as follows.
Cloud — 53%. Access of the company's clients to its software for money. Segment Gross Profit — 59,69% from its proceeds.
Services — 34%. Various technical services for NICE clients. Segment Gross Profit — 71,05% from its proceeds.
Goods — 13%. It's iron, supplementing some of the company's solutions. The devices themselves are manufactured by contractors. Segment Gross Profit — 90,66% from its proceeds.
In its 2020 report, the company details how, what exactly makes its software and solutions.
According to the areas of application, its solutions are divided as follows.
Communication with the client — 82%. Solutions for optimizing and automating user experience on customer online platforms. How it works, nicely shown in the NICE presentation.
Financial crime prevention and checking for suspicious activity — 18%. The vast majority of the company's clients in this area are financial institutions and law enforcement agencies..
Revenue by country and region:
- America - 82%, most are in the US;
- Europe, Middle East and Africa - 12%;
- Asian-Pacific area - 6%.
Arguments in favor of the company
Fell down. NICE shares have fallen heavily in these six months: in November they cost 315 $, and now - 222,68 $. Probably, the fall was due to the considerable price of the company. But I still think, that we can expect a rebound in these shares due to the following circumstances.
Promising. The goodness of the company's business will give a number of very different trends:
- The main "customer-oriented" business will grow due to the increasing transition of consumer activity to online.
- The fight against financial crimes and the investigation of suspicious activity will receive an additional impetus to development in the corporate sector in connection with the well-known events in Eastern Europe. I have little doubt, that budgets and efforts in this area will grow many times, not only to ensure the blockade of the Russian Federation, but also to work out a future blockade of China and other countries, not on the US agenda.
- Further decline in law enforcement in the US will create demand for NICE solutions from law enforcement.
Honestly, the second and third trends seem to me more promising in terms of rapid growth. In the case of the user segment, growth will be smoother - here I don’t see any factors yet, which could lead to accelerated adoption of NICE solutions by the corporate sector.
The world has already learned to live in a constant pandemic, and the transition to online will be gradual. But with law enforcement agencies and financial institutions there is just a field of unplowed work. Plus, in the case of the latest, NICE gets the opportunity to impose on customers a huge number of unnecessary functions at exorbitant prices.: the best IT specialists in these industries are very rare and therefore the level of technological savvy there is very low.
stable. Currently, renewable revenue is 80% of total revenue, what makes the company's business quite stable. This is a big plus in our unstable times., which can attract a lot of investors into these shares.
Inexpensive. P / S at the company 7,88, a P / E = 77,1. From a conventional point of view, the company, certainly, worth a lot. But if you take into account, that she works at the forefront of the in-demand technology field, then its price tag no longer looks so inadequate.
The company can be bought. I believe, that, taking into account all the positive aspects, the company may well be bought. Its capitalization is not excessively large - 14.19 billion, and therefore its purchase will be quite logical for some Cisco, which for about the same money is now buying some unprofitable story like Zendesk.
What can get in the way
Reputational risks. Israeli company, with a very large share of assets in Israel and a notable number of employees in this country. This makes her a hostage to what is happening around Israel.. A boycott by ESG funds is very possible in the event of an aggravation of the situation with the Palestinians.
Looking wider, the number of reputational risks the company has is huge. For example, its software could be used by some government, which will be declared "undesirable" by the State Department, and NICE quotes will be "punished".
Or the name of the company may come up during the next riot in the US, when it turns out, that her software was used by the police, who killed someone during the arrest, - in this case, its quotes will suffer from the punitive expedition of ESG funds. All in all, the fan of bad opportunities here is very large.
Accounting. The company currently has nearly $1.825 billion in debt., of which 1.222 billion must be repaid during the year. She doesn't have much money.: there are 378.656 million in accounts and 395.583 million in debts of counterparties. Considering short-term investments, which is a little more than a billion dollars, then the company has enough money for everything. But one should not forget that, that the value of the investment may change.
So for everything 100% you can't count on this money.. And in general it can be expected, that the company's debt level will remain high: it spends a lot on expansion, and tech startups are traditionally extremely expensive. This will be a vulnerability for NICE, because in the event of a scandal, it may complicate access to funding.
Israel. The company does most of its business in the US, but its US shares are just ADRs of the original Israeli company. Basically, it doesn't really change anything for investors. But the organizational and administrative problems of the company in Israel may adversely affect its quotes..
Not cheap. From a conventional point of view, the company's shares do not look undervalued., so they can still fall.
What's the bottom line?
Then there are three options:
- wait for the stock to rise to 260 $. Think, it is better to focus on 14 months of waiting.
- hold shares until they return to 315 $. Here it is better to count on two years.
- hold shares 15 years, until the company becomes Adobe from the world of financial monitoring.
Given the relatively high value of the company's shares, should be prepared for that, that they will be volatile.
