Crammarc April 2022 Portfolio

 Portfolio YTD Return
Jan	-24.2%
Feb	-12.8%
Mar	-21.1%
Apr	-39.4%

Portfolio Weights as of 4/31  
UPST	51.9%
MNDY	12.3%
DDOG	19.7%
CRWD	9.0%
NET	7.1%

Another tough month for the prices of these companies. In the absence of any news to the contrary I assume that the underlying businesses are continuing to grow robustly. That growth is what is important in the short term, the stock prices will follow eventually.

I trimmed my MNDY position and sold out of ZS and SNOW to purchase more UPST between $72 and $78.

I feel the need to explain a bit why UPST is 52% of my portfolio since a percentage that high is not common amongst many of the people posting their monthly summaries. In some ways it is a gut feeling that I think I can also justify with numbers. Every couple years I feel like I see moments when the market is just plain wrong. When UPST drops to under $80 a share and doubly so when it gets down to ~$72 I think that the market is way waaay off. I think the downside from that price is smaller than the other companies I am looking at. The company is already profitable and has indicated that they feel that their share price is so undervalued that they initiated a share buyback program. There is also nothing stopping them from continuing this strategy going forward if they continue to increase profits and the share price doesn’t repond. It’s not a guarantee but this mitigates the downside risk in my eyes.

Some back of the napkin math that reinforces my feeling that the market may just be wrong in valuing UPST. For Q1 2022 UPST projects 95.9 million diluted shares. At a share price of ~$73 that is a market cap of ~$7 billion. UPST authorized a $400 million share repurchase program. If UPST repurchased shares at less than $80 a share they will be able to buy back over 5 million shares with that money. 90.9 million shares at ~$73 a share is a $6.6 billion market cap. This company is likely to exceed $1.4 billion in revenue that they guided to. Even at a disappointing $1.4 billion that’s only a 4.7 Price/Sales ratio. At $1.6 billion it drops to 4.1 P/S.

For a profitable company GUIDING to 65% growth for the year the multiple doesn’t make sense. The unknowns have been stated ad nauseum here and I acknowledge that I don’t really know lending markets, ABS markets, interest cycles etc. However, I trust that the management of this company does. Fed interest rate increases for 2022 have been on the horizon since last year and I assume that UPST management factored this into their yearly guide.

Confirmation of a broader tailwind for unsecured lending? While Lending Club (LC) is a different kind of company I do keep an eye on some of their business segments that overlap with UPST. Their recent Q1 2022 presentation slides point to a strong quarter for unsecured consumer loans (UPST’s bread and butter right now). See slide 14/15 in the following:… . LC targets prime borrowers and UPST less prime borrowers so I don’t expect that LCs increases in these unsecured consumer loans will be at UPST’s expense.

I may be wrong, but I don’t see any direct evidence that UPST is going to do anything less than they have been publicly telling us all that they plan to do. So far, they haven’t been way off in guidance except that they have had a few surprises to the upside in the past ~1.5 years. Sure, the stock could drop more but I think it’s far more likely to go waaay up.

Lest anyone is worried for me if UPST severely disappoints: I have been investing for over 25 years and I know what it is like to see a portfolio halved… cough cough .com bubble and 2008/2009. Honestly, those crashes were way scarier than the past 6 month. Those felt like a freefall where the floor disappears underneath you and you have no idea how far you will fall or what will be left. “This time really is different” in that it’s just a price drop all the companies we are dealing with are still growing and none of them are on the verge of bankruptcy.

I expect UPST to rise significantly in the near term. When that happens I will trim UPST and spread it into SNOW, ZS, S, MNDY and DDOG.

Apologies for a more narrative summary but there weren’t that many new numbers to use to re-assess holdings in this past month.

Thank you to all the contributors to the board, especially those that keep the quality of posts high and the volume of posts low!