Gimo a Saul type stock?

Evening Saul,
I have a stock that I would like to get your take on. It would seem to fit your criteria as a growth stock. In its last earnings call it did over 50 percent revenue growth with 80 percent margins. It’s considered a disruptive technology and rather than Cisco competing with them they buy there product to use with there solutions. They had won many rewards when coming public for there growth achievements.

It was up 9% on Friday with Goldman giving it a price bump to 38 dollars a share going into earnings next week.

The company is Gigamon (Gimo)I had bought shares at the ipo at 29 and it went to 40 but settled down in the 29 range until recently. Can you tell me if this stock would fit your criteria? Wonder why it hasn’t skyrocket like your picks. What am I missing. Thanks.

Gerald

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Hi Gerald,

Not Saul, but I had a quick look at the company website and their 10Q for Sept 2013. Looking at page 4, consolidated statement of operations, revenue for 9 months ending in 2013 was $97M, compared to revenue of $65M for the same period in 2012. That’s a solid 50% increase since last year. Corresponding numbers for cost of revenue are $22M and $13M for 2013 and 2012, respectively. So far, all good. However, the cost of operations has ballooned. Operating expenses increased from $47M in 2012 (for 9 months) to $107M in 2013. That appears to indicate that to get a 50% revenue growth they had to increase operating expenses by 125%.

looking at the items on the operating expenses numbers, it appears they are spending more on R&D. R&D costs increased from $12M to $32M. This may well be good use of monies. Sales and marketing has increase from $27M to $54M. This doesn’t look that good to me: 100% increase in sales and marketing to get a 50% bump in revenue? Also, G&A increased from $8M to $21M; I didn’t check the why for this.

Anyways, those are thoughts just based on numbers. I didn’t check enough to figure out anything about their products, services, and competition.

Can you please share the thesis behind the investment?

And, of course, I too 'm interested in hearing Saul’s thoughts on this idea.

Anirban

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Thanks Anirban,
My thesis for buying into this company was watching it ipo and ringing the bell on Cnbc. Cramer interviewed the CEO before the bell and revealed that the company grew revenue for 22 consecutive quarters and the list of customers were the who’s who in telecom.

He made the comment that in his opinion it was the best growth story of 2013. I was excited and picked up some shares and everything was great until they did a secondary offering and was downgraded.

They announce earnings next week and the Goldman analyst predicts a blow out quarter and raised price to 39. They are in the big data segment of the market. The kind of segment that can grow forever as Saul would say. If you have the cnbc app on your smartphone you can catch the video of some of the interview.

Thanks Gerald

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Gerald,

Don’t know the stock, but I can’t figure out why they haven’t gone up much. The decrease in earnings per share year over year is due to more shares from the IPO. Net Income was way up. I may look at it some more. I don’t really understand what they actually do though.

Saul

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