Procore (NYSE: PCOR) - American manufacturer of software for the construction industry. The company's business has good growth prospects, but its abnormal price and loss making it an extremely risky investment..
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What do they earn
The company has recently been listed on the stock exchange.: IPO took place 19 May of this year. So the main source of information about the business for us will be the Procore registration prospectus. However, there are no details about the sales structure.
Procore is a cloud-based construction management software. What does it look like, can be viewed in the demo video companies, especially the curious can watch all the videos on the Procore channel. You can say, what is Wrike for builders.
The company has five categories of software products:
- Preliminary work. Planning, budgeting, participation in tenders, evaluation of works and selection of partners.
- Project management. Reflection of the activity of the main participants of the construction project in the virtual sphere: progress, adjustments, problems and more.
- Resource management. Software for evaluating project profitability and labor productivity.
- Financial management. Software for monitoring the financial side of construction work.
- Company analytics. Software for analytics of trends in construction projects of the user.
The company receives money by subscription.
By country, revenue is distributed as follows: USA give 87,8% company revenue, and 12,2% falls on other countries. The exact share of each country is not known, but known, what is this Canada, Mexico, England, New Zealand, Singapore and UAE.
The company is unprofitable.
Arguments in favor of the company
It's time, brother, it's time. American homebuilders have reached a certain impasse in development: real estate prices in the US are very high, which provides a high business margin, but the lack of everything, including workers, and logistical difficulties do not allow them to take advantage of this. Therefore, one can expect, that construction companies will start investing more in IT initiatives, to increase productivity.
The US construction sector is experiencing extremely low productivity growth - construction companies have a lot of work ahead of them to correct this flaw.. So the long-term business environment for Procore seems to be positive..
It seems that there is room to grow. On the platform, companies are working on projects with a total value of more than $ 1 trillion - and in total, construction projects in the world are carried out every year for $ 12 trillion.. So the company still has room to grow..
Maybe, buy. Given the trend towards consolidation in the construction industry and the dominance of large players there, the possibility, that one of them will buy Procore. However, there is a nuance here.
What can get in the way
Unprofitableness. Losing stocks are a priori volatile, and there is always the threat of bankruptcy nearby.
Evaluation. Procore itself estimates the size of its target market in the region of 12.4 billion dollars a year.. Procore currently occupies 3,7% your target market, but at the same time it costs 11.54 billion - that is, the company costs approximately the same as its entire target market. This already encourages a strong correction of these stocks.. Still, such a price will scare away potential buyers of this business..
Unprofitable-2. The American market has become too expensive compared to the exchanges of other countries. And although I doubt, that there will be a large-scale general correction, objectively overvalued and unprofitable companies like Procore will be the most vulnerable. Especially now, when everyone is preparing to raise rates and increase the cost of loans.
Customers are not so happy. Procore's revenue retention rate is 94%. These are normal indicators for the company., subscription model. But in general it means, that Procore can't squeeze enough money out of its existing user base, to offset the churn of subscribers. The company has many competitors, and their presence does not allow us to hope that, that in the foreseeable future, Procore will be able to reduce the cost of attracting customers. AND, again, this moment will reduce the attractiveness of the company in the eyes of a potential buyer.
Resume
Like SentinelOne Procore is an interesting solution in a promising area, but the monstrous high cost of the company, coupled with unprofitability, makes it an extremely dubious investment at current prices.
If the company cost four times cheaper, then it could be considered a promising investment. But now it costs too much - and unfairly expensive at the same time.. So you can invest in Procore only at your own peril and risk., I would prefer to wait for the correction of these shares and think about investing in a company with a share price in the area 40 $.
