I almost finished this over the holidays, but now it is finally done. Since then I saw a post on the board that this was once owned here but sold partially because of greedy management. I will go ahead and post again in case the new numbers make it tempting again.
||================== ElliMae (ELLI) ==================||
Saul Analysis: (see KB#9939)
look for companies that are growing fast, have recurring income, insider ownership, some kind of moat, reasonable PE, etc, and hope to find most of these qualities in stocks I’m investing in. So…
Makes software for Mortgage loans.
And while the industry has changed, our mission to automate mortgages so lenders can achieve compliance, quality and efficiency hasn’t. Nor will it.
We serve banks, credit unions and mortgage companies of all sizes. We’re committed to our clients. We’re committed to the mortgage business. And we’re committed to innovating how mortgage professionals work, and work together, to originate, process and close high-quality, compliant loans.
Ellie Mae, Inc. provides on-demand software solutions and services for the residential mortgage industry in the United States. Its mortgage management solution offers a system of record that allows banks, credit unions, and mortgage lenders to originate and fund mortgages. The company provides Encompass, a proprietary software solution that combines loan origination and enterprise management software for mortgage originators into a system, as well as access to investors, lenders, and service providers on the Ellie Mae Network…. (and more)
look for companies that are easy to follow
Pass: if you recall my post of public MDP candidates recently, ELLI was one of them.
Don’t need to understand the technology/industry
Not complicated. Provide software to manage mortgages, originations, compliance, etc. The compliance part is pretty handy these days. Like using TurboTax, when the rules change, you know TurboTax has you covered.
want a company with rapidly growing earnings
luckily*, this stock was in the spreadsheet and I have verified and slightly adjusted based on the last 2 earnings releases. In the cell for earnings, I put notes there were copy/paste of the words from the press release so you can see exactly where the numbers come from.
*I had several candidates to research and this was the only one in the sheet, so I went with it first
Composite Rating 91 Neutral
EPS Rating 98 Pass
RS Rating 77 Pass
Group RS Rating B+ Pass
SMR Rating A Pass
Acc/Dis Rating D- Fail
Decent ratings, but composite is weak as is accumulation.
look for recurring revenue (e.g. Razor blade model)
Pass: Their Encompass platform is a subscription model. Not sure what the retention rate is.
look for substantial insider ownership
Finviz says 2.2%
% of Shares Held by All Insider and 5% Owners: 4%
Get the information yourself. (Not yahoo, etc)
EPS from spreadsheet and press release…
EPS Growth (Non-Gaap) Year Q1 Q2 Q3 Q4 Year % change 2013 0 2014 $0.16 $0.32 $0.29 $0.38 1.15 2015 $0.33 $0.48 $0.45 0.21 1.47 28% *28% YoY is pretty good, IBD likes to see 30% Q42015 is analyst estimate from Yahoo. From Press Release: Adjusted net income is expected to be in the range of $5.5 million to $6.3 million, or $0.18 to $0.20 per diluted share. Just looking at last 8Q, the numbers look better, but if analysts estimates are correct, then rate is slowing, for at least 1Q. Q EPS Yearly Growth Q-8 $0.19 Q-7 $0.16 Q-6 $0.32 Q-5 $0.29 $0.96 Q-4 $0.38 Q-3 $0.33 Q-2 $0.48 Q-1 $0.45 $1.64 71% $0.96 TTME Last Year $1.64 TTME This Year 71% YoY EPS $ 60.23 Price 36.73 TTM PE 0.52 1YPEG
look for a company that has a long way to grow long runway. One that ideally can grow almost forever
Lots of mortgage lenders they can sell to and I think the housing market is picking up. Are rising rates going to hurt them?
Not too big to grow/double/triple (e.g Sketchers not Nike)
Pass: Market cap $1.83B
want a company that does something special,
Neutral: I think this is a valuable service, but is it “special”?
want management to be interested in making a profit.
Stocks Saul likes to avoid:
China, Mining/Drilling, Restaurants
Addition research ideas for evaluating a new company.
tidbits from last quarterly report
you should read the Q report, let us know if there is anything interesting
tidbits from the last Conference Call:
you should read the Conf Call, let us know if there is anything interesting.
look for a company with rapidly growing revenue. (at least 25% per year)
two years of revenues:
Trailing Revenue Last Year (in $M) Trailing Revenue This Year (in $M) Q-8 Q-7 Q-6 Q-5 Q-4 Q-3 Q-2 Q-1 $30.00 $32.00 $40.00 $42.80 $47.00 $54.00 $65.90 $68.90 $145 TTM Rev ($M) Last Year $236 TTM Rev ($M) This Year 63% YoY Rev Growth 0 Market Cap ($M) 0.0 Price/TTMS ¬ Revenue Growth Year Q1 Q2 Q3 Q4 Year % change 2013 0 2014 $32.00 $40.00 $42.80 $47.00 161.8 2015 $54.00 $65.90 $68.90 61.11 249.91 54%
Q42015 is analyst estimate from Yahoo.
From press release: For the fourth quarter of 2015, we expect revenue to be in the range of $59.5 million to $60.5 million. Reflecting the normal seasonality in a purchase-centric market, increased investments, and expected purchase accounting impact for the Mortgage Returns acquisition that we announced on October 14, 2015
Is P/FCF less than 30-ish? ( Price to Free Cash Flow ratio?)
Fail: P/FCF is 58 per Finviz
low debt levels?
Pass: Finviz says almost 0 debt.
good cash levels?
Finviz says 3.70/share
tidbits on competitors and risk: (see the 10K)
Yahoo indicates all competitors are private companies
Other useful links
Above link shows a “Peter Lynch” chart and it does not look too favorable, it has accelerated above the EPS, but they might not be using the same non-GAAP as us.
This is interesting, it purports to grade a stock based on Motley Fool criteria
ELLI Report Card PROFIT MARGIN: [PASS] RELATIVE STRENGTH: [PASS] COMPARE SALES AND EPS GROWTH TO THE SAME PERIOD LAST YEAR: [FAIL] INSIDER HOLDINGS: [FAIL] CASH FLOW FROM OPERATIONS: [PASS] PROFIT MARGIN CONSISTENCY: [FAIL] R&D AS A PERCENTAGE OF SALES: [NEUTRAL] CASH AND CASH EQUIVALENTS: [FAIL] ACCOUNTS RECEIVABLE TO SALES: [PASS] LONG TERM DEBT/EQUITY RATIO: [PASS] "THE FOOL RATIO" (P/E TO GROWTH): [FAIL] AVERAGE SHARES OUTSTANDING: [PASS] SALES: [PASS] DAILY DOLLAR VOLUME: [FAIL] PRICE: [FAIL] INCOME TAX PERCENTAGE: [PASS]
PE = 83
Forward PE = 35.5
If you own LGI Homes, then this is more exposure to the housing market.