I listened to two of The Motley Fool podcasts yesterday: Motley Fool Money and Market Foolery. They mentioned three stocks that I thought sounded interesting. Here is a brief summary:
AppFolio (APPF) was founded in 2006 and offers software-as-a-service applications for vertical markets. AppFolio initially focused on Property Management. With the acquisition of MyCase in 2012, it expanded into the Law Practice Management industry. There are two main products:
MyCase - Solutions for modern solo and small legal firms.
AppFolio Property Manager - Solutions for modern property management companies.
Revenue for the first three months of 2018 was $42,340
52 week high/low: $68.45/$31.15
ShotSpotter, Inc. (SSTI) is the world leader in gunshot detection, and its solutions are the leading gunfire alert and analysis solutions. Its public safety technology solutions are focused on improving public and community safety by locating gunfire and other explosive events, and ultimately, helping reduce and prevent gun violence and improving intelligence-led policing and community policing initiatives.
(From Buzzfeed) Cutting out violent gunfire in some of America’s worst neighborhoods is a constant problem that might become a little bit easier with the help of technology. For the most part, police are dependent on somebody calling 9-1-1 when they hear gunshots, and sadly, that often times doesn’t happen in some of the more crime ridden areas. A new gunfire sensory technology though might just give the good guys an added advantage.
ShotSpotter is a gunfire detection technology that uses acoustic sensors to isolate the sound of gunfire and alert the police. The sensors are placed at 30-foot elevation under a mile apart. When shots are fired anywhere in the coverage area, ShotSpotter triangulates their location to within 10 feet and reports the activity to police.
Seeking Alpha article: https://seekingalpha.com/news/3362429-shotspotter-plus-11-pe…
52 week high/low: $41.62/$9.33
Carbon Black, Inc. (CBLK) is a cybersecurity company based in Waltham, Massachusetts. The company develops endpoint security software that detects malicious behavior and prevents malicious files from attacking an organization.
Seeking Alpha article: https://seekingalpha.com/news/3362692-analyst-raise-carbon-b…
52 week high/low: $22.56/$30.39
Both podcasts: Motley Fool Money and Motley Fool and Market Foolery mentioned Carbon Black.
Remember: these stocks are simply ones that the analysts are interested in; it doesn’t mean a recommendation to buy or sell. I see this as an opportunity for us to pursue more thoroughly.
AppFolio had caught my eye in Hidden Gems shortly after I joined that service in late 2018, shortly before it was shut down almost 2 months back with the roll-out of Market Pass. Part of that may have simply been that its name reminded me of Appian, which Tom G. had mentioned here on this board shortly before recommending it in Stock Advisor, which prompted a big run-up as Appian is a smaller market cap company relative to many Stock Advisor recommendations.
I am not certain of AppFolio’s present status as an official TMF service recommendation, as I didn’t join Market Pass and only have Stock Advisor and Rule Breaker memberships at present. However, it may be worth a closer look (as could SSTI and CBLK).
I started a small position in them in February this year. Some key things that I liked:
** They’re profitable: turned profitable in Q1 2017 and increased for 5 straight quarters since.
** They started generating positive Operating Cash Flow almost a year before that: Q2 2016
** Since going public in 2015, they’ve increased revenue between 30% - 46% every quarter (although note that the recent quarter - Q1 2018 - showed their slowest Yr/Yr growth in the last 9 quarters at 31.8%)
** They have $68M cash and no debt (couple this with the fact that they’re generating positive cash flow and this is a big plus)
Note of caution:
** Customer growth has slowed from 20%-30%+ down to the mid teens growth. However, note that while they split out the customer base by Property Managers (14.9% latest quarter y/y growth) and Law Firms (11.9% latest quarter y/y growth) they don’t split out the revenue by this customer type. But in reading through past articles and doing some digging, over 80% of their business is from the Property Managers. So while they appear to have nearly even splits between Property Managers and Law Firms, they are very much in the business of giving software solutions to property managers (who collectively own 3.4M units of housing). And every unit of housing gives a small dollar amount of rent every month to APPF for providing their services which is a very good subscription business to be in since people will continue to need to put a roof over their head every month.
I’m not sure if there’s been a write up on this board for APPF, but this is a company that I’ve really started to dig into over the past few months. It’s up nearly 50% from my purchase in February (from $44/share to today’s $65/share).
APPF certainly seems like the type of stock that fits this board (although I’m still only on Part II of the Knowledge Base).
I really like APPF and would be keen on initiating a position on a pullback/correction - just can’t quite bring myself to pull the trigger at current valuation, and would be keener on putting the money in INST or YEXT on current valuations. I should have definitely held onto my December position!
I’m interested in small cap growth companies with a reasonable chance to 5 or 10x over 7 years…the venture capital type approach. At the same time I like to invest with a margin of safety.
INST is an educational Saas play. Not an sexy sector, but one in need of good solutions
1.6b mkt cap, >40% yoy rev growth, and forward ev/s below 7,which gives me my margin of safety. Relatively low daily volume, so largely under the radar.
As for YEXT, I like that they enable companies to control structured data about business. Thinking about the rise in voice search for example, I can see how they add value. From a financial perspective, there’s a nice graphical summary here
In addition forward ev/sales comes in below 8,and I get my margin of safety.
The margin of safety is important to me, because I usually plan to hold companies for years at a time, and the companies I like tend to be volatile ,so I try to control my entry and will usually only buy when something I like/track is more 8% below it’s 52 week high. I try not to chase, and to be patient.
I am long SQ, SHOP, BZUN, TTD, INST, YEXT, 0700 Tencent, PAGS (Brazil fintech…higher risk but amazing annual rev growth so far). Both SQ and SHOP have returned over 100% so far. TTD and BZUN are close.
I know ADRs tend to get less love here, but there are some good international companies out there.
For me, the what to buy is a combination of: market leader, a growing addressable, with high gross margins, rapid annual revenue growth, and a way to see the company increasing in size by an order of magnitude
As for the when to buy:
I plug SAAS stocks that I track into a formula based on these, to identify when they might be trading at a discount to implied value
Not a magic formula, but it helps me. The best example in the last few month for me was to load up on TTD based on the discount to the implied valuation using both the formulae, the story, and great management