6/13/24 - $iot - buyer <$30, but only big ~$20-25
6/13/24 - as written in a note prior to EPS, there's no getting around how expensive this is. even with $10 off the highs (from $40->$30 today) the stock still packs a 13x ev/ fwd sales multiple. is it worth paying that for 30% growth this year and 25% next where profitability remains strained and we've not yet reached true scale?
here's the yes (followed by the "no"):
- internet of things leader. best in class. growing like a weed and not yet climbing the s-curve
- the 30% to 25% growth is wall street math (accelerating growth is tough to forecast and justify unless you dig in). mgmt is telling us they're at the early part of the adoption curve. 30% staying at 30% or going to 40% is just as likely as 30% going to 25%. if that's the case, you better believe sub 10x on that higher $1.7 bn in '25 (40% on the 1.2 bn of revenue this year) will look cheap. you'll also be scaling the opex too at that point.
- love mgmt. sold meraki to
CSCO in 2012. founded iot... and it's bigger and the dream is better. clear communicators, great tech (selling to COO's not CIOs) that offers obvious payback for customer adoption.
here's the "no":
- purely a valuation equation - 13x for 30% is objectively expensive on a factor basis, the equivalent "going rate" in today's tape (it's june 2024 at nosebleed highs but struggling software bids) is without question below 10x and depending on the moat, the execution (did they beat/ miss/ how's guidance) a sliding scale between 5-10x. i'd argue this one (
IOT) would probably benchmark at 7-9x when thought of as a composite of any of it's related software peers.
- so if round up, 9x is the going rate... and we're at 13x - it doesn't take a rocket scientist to understand the incremental bid might not be there if we get a risk off event (e.g. it's not cheap, so PMs will be cutting exposure to this likely faster).
- the stock at 16 bn valuation isn't "large". it sits in a lot of funds, ETFs etc, but it's not a mission critical own. if a PM doesn't own it and it rips, they don't lose vs the benchmark (which is how they all think) but if they do and it goes from 13x->9x... they underperform. there's career risk of getting too big too soon in this stock.
so what to do?
- i've come to the conclusion that i need to have some exposure to what i believe is a unique asset, best in class, great mgmt and the adoption curve/ growth picture is likely not reflecting the potential total addressable market in 5 yrs and this co's market share "today". i also don't expect the market (nor should it) to reflect this immediately beyond a takeout or something of this sort (which i'd say is a low/ or 20% probability). as mentioned above - if we sell off i'd like to add to it, and all else equal i think the risk in the short term is still more skewed negatively on valuation alone. but given the MT/LT upside i see, i believe it makes sense to hold it as a small position and monitor it closely. this is one that i'd love to turn into a core position. i don't like "not owning" stocks that i believe are one of a kind, expensive (but for a good reason) and where the expectations will be dramatically exceeded in the medium-long run.
I'm at about a 2% position today. I'd love to get this to 5 or even 10% depending on what happens in the coming months ahead, especially if we can enter the low to mid 20s. at sub $20 i'm all in, but i don't expect that px outside of a black swan (and we gotta be ready to hit the bid hard HERE before other names).
keep you guys posted as i make bigger moves here.
be safe, manage risk accordingly/ stay solvent.
V
here's the yes (followed by the "no"):
- internet of things leader. best in class. growing like a weed and not yet climbing the s-curve
- the 30% to 25% growth is wall street math (accelerating growth is tough to forecast and justify unless you dig in). mgmt is telling us they're at the early part of the adoption curve. 30% staying at 30% or going to 40% is just as likely as 30% going to 25%. if that's the case, you better believe sub 10x on that higher $1.7 bn in '25 (40% on the 1.2 bn of revenue this year) will look cheap. you'll also be scaling the opex too at that point.
- love mgmt. sold meraki to
CSCO in 2012. founded iot... and it's bigger and the dream is better. clear communicators, great tech (selling to COO's not CIOs) that offers obvious payback for customer adoption.here's the "no":
- purely a valuation equation - 13x for 30% is objectively expensive on a factor basis, the equivalent "going rate" in today's tape (it's june 2024 at nosebleed highs but struggling software bids) is without question below 10x and depending on the moat, the execution (did they beat/ miss/ how's guidance) a sliding scale between 5-10x. i'd argue this one (
IOT) would probably benchmark at 7-9x when thought of as a composite of any of it's related software peers. - so if round up, 9x is the going rate... and we're at 13x - it doesn't take a rocket scientist to understand the incremental bid might not be there if we get a risk off event (e.g. it's not cheap, so PMs will be cutting exposure to this likely faster).
- the stock at 16 bn valuation isn't "large". it sits in a lot of funds, ETFs etc, but it's not a mission critical own. if a PM doesn't own it and it rips, they don't lose vs the benchmark (which is how they all think) but if they do and it goes from 13x->9x... they underperform. there's career risk of getting too big too soon in this stock.
so what to do?
- i've come to the conclusion that i need to have some exposure to what i believe is a unique asset, best in class, great mgmt and the adoption curve/ growth picture is likely not reflecting the potential total addressable market in 5 yrs and this co's market share "today". i also don't expect the market (nor should it) to reflect this immediately beyond a takeout or something of this sort (which i'd say is a low/ or 20% probability). as mentioned above - if we sell off i'd like to add to it, and all else equal i think the risk in the short term is still more skewed negatively on valuation alone. but given the MT/LT upside i see, i believe it makes sense to hold it as a small position and monitor it closely. this is one that i'd love to turn into a core position. i don't like "not owning" stocks that i believe are one of a kind, expensive (but for a good reason) and where the expectations will be dramatically exceeded in the medium-long run.
I'm at about a 2% position today. I'd love to get this to 5 or even 10% depending on what happens in the coming months ahead, especially if we can enter the low to mid 20s. at sub $20 i'm all in, but i don't expect that px outside of a black swan (and we gotta be ready to hit the bid hard HERE before other names).
keep you guys posted as i make bigger moves here.
be safe, manage risk accordingly/ stay solvent.
V
Uwaga
don't want to take profits too soon on LT compounders, but i'm taking half off the table and putting in my pocket. continuing to build that cash stack that's larger than normal. 2% position now -> 1% position. here in the high $33's. i have a sense i'll get to rebuy this below $30. otherwise it just rides higher in my portfolio and we come back to it in time.
V
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