Category Crushers, and other titles -2

Feb 2018 - Category Crushers, and other titles -2

Last May I noticed that a quality that I seemed to be looking for in choosing my stocks was a company that dominates its space. But there were gradations in the companies that I’d invested in. I roughly defined some categories and tried to see which category each of my stocks fitted in. And then compared average gain year to date.

I recently reread all my notes on Talend, and it inspired me to redo this category list for some of my current stocks. If I wrote a stock up last May, I’ll include at least a part of that write-up (in italics, so you can tell).

First there’s a Category Crusher, which completely dominates its space (Amazon is an example, in online retail).

Second would be a Category Leader, which puts this company in first place in its space, but where there are significant competitors.

Another category would be a Disruptor, a company trying to disrupt a stagnant market with new stuff.

New Market Stocks – suggested last year by Othalan, with respect especially to Big Data New Market Stocks

Then there is a Rapidly Growing Company in a Rapidly Expanding (New) Market. It’s not dominant, and not necessarily the leader, but it’s growing rapidly because its market is growing rapidly. (Hortonworks is an example).

Then there’s a Rapidly Growing Company in a Normal Market.

Now I’m going to place each of my stocks, taking them in order of position size:

Shopify: (15.0% of my portfolio). I’d draw a line between Category Leader and Category Crusher, and place Shopify three-quarters of the way to Category Crusher. I’m sure some people would disagree with me (in both directions). What makes Shopify different, I think, is that it’s a Newly Discovered Category Crusher, and everyone is rushing to get on board.
That’s what I wrote last year. This year I think I’d have to move it up to seven-eighths of the way to Category Crusher. It’s become the primary company one thinks of when setting up a ecommerce website. Square overlaps a little, but it plays mostly in a different ballpark. Shopify finished up 135% last year

Arista: (14.1% of my portfolio) – I’d call Arista a Disruptor and an Emerging Category Crusher, but one who still has serious legal problems to overcome.
Well, I’d still call it a Disruptor and an Emerging Category Crusher, but I’d say that 9 months later, its legal problems seem much more in the rearview mirror. Arista finished up 143% last year, reflecting that the legal problems seem behind it.

Alteryx: (12.7% of my portfolio) - I didn’t have a position last May.
I’d call Alteryx an Emerging Category Crusher. There simply isn’t anyone else that does exactly what they do, although a number of companies do part. Alteryx finished 2017 up 46% from the opening after its IPO in March.

HubSpot: (11.8%) – Probably a Disruptor with its inbound marketing specialty, and its officers actually wrote the book. Some elements also of a Category Leader.
I’d probably make the same calls now. Hubspot was up 88% last year.

Nvidia: (11.0% of my portfolio) - I didn’t have a position last May.
I’d call Nvidia a full-fledged Category Crusher, but one who has to run to keep that position. Right now it’s miles ahead. I’d probably also call it a Big Data New Market stock. Nvidia was up 81% last year.

Nutanix: (10.6% of my portfolio) - I didn’t have a position last May.
I’d call Nutanix a Category Leader with aspirations to be an unrecognized Category Crusher. It has a lot of skeptics though. It pioneered and is the market leader in a category called hyper-converged infrastructure. It’s also a Big Data New Market stock. Nutanix was up 33% last year.

Square: (9.9%) – I think it fits best as a Rapidly Growing Company in a Normal Market. It just does things effectively and well, and has great management.
I can’t argue with that description, and I’d have to add that it’s becoming a Leader in that market. Square was up 153% last year.

Talend: (6.1%) – This is an Unrecognized Category Crusher!!! Lest you have any question about that, here’s a quote from a conference call, by their CEO:
We really like our differentiation right now in cloud and big data, and our win rates remain ridiculously high, which is evident from the growth rate… The large players continue to be challenged. Long term I think most of the competitive battle is going to be fought with very small players (that aren’t there yet)…So we’re in this kind of special period in the middle right now (with no functioning competitors) and we’ll see how long that lasts.
Convinced? I’d still call it an Unrecognized Category Crusher, and add in a Disruptor and a Big Data New Market stock. Talend was up 69% last year.

Pure Storage: (4.8% of my portfolio) - I didn’t have a position last May.
Pure seems to be a Disruptor and Category Leader certainly, and perhaps a quarter of the way along to being a Category Crusher. They also are a Big Data New Market stock. Pure, like Nutanix, has a lot of skeptics. Pure was up 40% last year.

My Conclusions? I’m not sure that I see any real benefit to these categories except to help me visualize a bit about each company’s position in the market place. It’s fun though, placing them in these categories, and it does make me think more about them.

Saul

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For what it’s worth, Jack Welsh expected GE’s divisions to be one of the top two in its sector, if not it was sold.

Denny Schlesinger

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