To: JabbokRiver42
Re: Sprout Social (SPT) Price: $130.67 Market Cap: $7.1 billion
I enjoyed reading your write-up of Sprout.
The stock price of Sprout has performed extremely well since Bert recommended it at $27.11 in July 2020.
Although I have been a happy shareholder since then, I chose not to recommend Sprout to this board because quarterly revenue has been growing at less than 40% until the most recent quarter and the gross margin is less than 80%. I agree with the Seeking Alpha articles that indicate most of Sprout’s share price appreciation has come multiple expansion.
Revenue growth shows an accelerating trend but barely meets the 40% growth threshold of this board:
Sep 2020 +27%
Dec 2020 +33%
Mar 2021 +34%
Jun 2021 +42%
Usually, this board like to see a gross margin of at least 80%. Sprout’s gross margin is 75%.
When Bert first recommended Sprout, it was selling for 8x sales, now it’s selling for over 40x sales (TTM).
With the run in Sprout’s stock price, I have reduced Sprout from a major holding (12%-15% of my portfolio) to a minor holding (4%). As you point out, there is still a lot to like about this company. I hope to buy more at a lower valuation.
wrciii