Category Crushers, and other titles.
I’ve been noticing that another quality that I seem to be looking for in choosing my stocks are a company that dominates its space. But there are gradations in the companies that I’ve invested in. I’m doing a little exercise here of defining categories and seeing which category each of my stocks fits in. And then to compare average gain year to date. Please comment on my category placements, especially if you disagree with some of my choices.
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.
Then there is a Rapidly Growing Company in a Rapidly Expanding 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. (To help you compare their rates of growth with where they fit in my entire universe of stocks, my portfolio as a whole is up 33.3% year to date.)
Shopify: (19.25% 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. It has moved from $42.90 to $93.60 year-to-date, which is up an amazing 118%.
LGIH: (11.95%). I think I’d have to place this as a Rapidly Growing Company in a Normal Market, but one that I consider currently very undervalued. I toyed with calling it a Category Leader in homes for first time home buyers, but I’m not really sure it qualifies. Year to date it’s gone from $28.73 to $31.75, up 10.5%.
PayCom: (9.25%). Hard to categorize this one. I’d put it as Category Leader in its space of small to mid-size businesses, but you could call it a Rapidly Growing Company in a Normal Market. It has elements of both. Year to date it’s gone from $45.50 to $65.00, up 43%.
Splunk: (9.15%). Splunk gets placed as a Category Leader. It was recognized by Cisco as Global Partner of the Year, as well as an Outstanding Solutions Partner and Public Sector Consultant Partner of the Year.
It was ranked number one in worldwide IT Operations Analytics software market share for 2016 by IDC for the second year in a row. It had onver 28% of the market share.
It won the award for Best SIEM for Splunk Enterprise Security and was named Security Vendor of the Year in the Computing Security Excellence Awards 2016.
It was named a finalist in CRN’s 2016 Products of the Year
Splunk ES was named Best Enterprise Security Solution at the 2017 SC Awards.
It won 2016 Governance Team of the Year
Year to date it’s gone from $51.15 to $67.40, up 32%.
Arista: (8.15%) – I’d call Arista a Disruptor and an Emerging Category Crusher, but one who still has serious legal problems to overcome. Year to date it’s gone from $96.80 to $146.80, up 52%.
Ubiquiti: (7.70%) – This company seems to fit best as a Disruptor that analysts don’t understand, but it also could be described as a Rapidly Growing Company in a Normal Market. Year to date it’s gone from $57.80 to $47.75, down 17.4%.
Square: (7.50%) – 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’ve had it since the beginning of March, and in that time it’s gone from $17.75 to $20.09, up 13%. Year to date it’s gone from $13.81 to $20.09, up 45%.
Amazon: (5.95%) - Clearly a Category Crusher, but a mature one. Year to date it’s gone from $750 to $961.50, up 28%.
Talend: (5.57%) – This is an Unrecognized Category Crusher!!! Lest you have any question about that, here’s a quote from their conference call:
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 market dynamic is that the large players continue to be challenged, and long term I think most of the competitive battle is going to be fought with very small players that are trying to get up to scale right now. 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 started a half position in mid-February at $26.80. It’s now at 31.96, so in three months it’s up 19%. Year to date it’s gone from $22.30 to $31.96, up 43%.
HubSpot: (5.45%) – Probably a Disruptor with its inbound marketing specialty, and its officers actually wrote the book. Some elements also of a Category Leader. After exiting in January, I re-started
a small position in mid March, at an average price of $62.40. It’s now at $69.50, so after two months it’s up 11%. Year to date it’s gone from $47.85 to $69.50, up 45%.
Mulesoft: (5.28%). Mulesoft is a Disruptor and an Unrecognized Category Crusher. It’s in a field where the legacy companies have essentially no growth at all, and it grew revenue 71% last year. It basically has no effective competition in what it does. It IPO’ed two months ago and its price shot up and its price has been marking time since.
Hortonworks: (1.20%) This is a Rapidly Growing Company in a Rapidly Expanding Market. It started the year at $8.31 and I sold out in April, at about $10.44, so when I sold it it was up 25.6%. After earnings, Bert convinced me and I bought back in on Monday at $10.91, but I only had enough cash available for a 1% position. It’s now at $13.42, so it’s up 23% since I bought back in Monday, and year to date it’s up 61.5%.
My Conclusions? After all that I don’t see any clear pattern, except that newly recognized category crushers seems to take off (Shopify, and Amazon when it was younger). I think I should increase my positions in my two unrecognized Category Crushers (Talend and Mulesoft), which hopefully will do the same when they get recognized.
What do you fellow investors think of these categories? I must admit that I’m not satisfied with them.
Saul