We’re buying one software company’s stock today and selling another’s. Our buy’s shares are rated ‘Outperform’ at Raymond James, ‘Buy’ at Bank of America, and ‘Overweight’ at KeyBanc.
Buy: Coupa Software Incorporated (COUP)
From Cabot Growth Investor
We don’t want to get too heavy in software stocks, but having booked our modest gain in Workday, we’re okay starting a position in Coupa Software Incorporated (COUP), a stock we’ve followed for months and has one of our favorite stories.
The company’s cloud platform looks like the hands-down leader for business spend management, which is about as mass market a product you’re going to get in the business world. Since its launch, Coupa’s platform has processed $1.2 billion in payments. That figure is up $450 billion from the year before, and all that spending has led to proprietary data and knowhow that keeps Coupa well ahead of the competition. The firm said it’s taking on some very complex, multinational, multi-currency, multilingual installations, so it’s clear the industry sees Coupa as the gold standard.
Management has a goal of $1 billion in annual revenue down the road (triple its current run rate), and there’s little doubt it will get there. In Q1, the top line grew 44%, which was miles above estimates (subscription revenues were up 46%), while billings leapt 50% and deferred revenue rose 45%. Better yet, the bottom line was in the black (three cents per share), and free cash flow came in at a whopping 20% of revenue in the quarter.
The stock fell to its 50-day line (and prior support near 100) during Monday’s market wipeout, but after earnings, it ripped higher on its heaviest volume in more than two years. The company is set to sell a good-sized (and dilutive) convertible bond offering, which could possibly dent the stock when it’s priced. But today the stock actually rose despite that news, which is a rare show of strength. We’re OK grabbing a half-sized position here.
Michael Cintolo, Cabot Growth Investor, www.cabotwealth.com, 978-745-5532, June 6, 2019