The major indices are mixed following a choppy but very active morning session on Wall Street. The Nasdaq continues to show weakness amid the intensifying fears of a spike in inflation, and the fact that commodities continue to push higher confirms the upward pressure on prices. Iron ore and steel already hit new record highs this week, and the widely-watched copper is now also very close to hitting an all-time, which could give another boost to commodity-related stocks and cyclical issues.
Stock Pick Summary:
Growth stocks continue to be punished over fears of rising rates and inflation, and over bloated valuations. However, we persist with our strategy of meticulously filtering out the quality opportunities on fundamentals, growth potential and looking ahead 3-5 years from now. We are not concerned about our returns in the short term. Today, we add another quality stock that is getting punished today after the company reported Q1 EPS of $0.05 vs consensus $0.10. Revenue of $590.0M rose 62% y/y beating consensus of $533.4M. Guidance was mixed with Q2 non-GAAP EPS of ($0.16)-($0.13) lower than the consensus ($0.04) despite significantly better-than-expected total revenue of $591.0-$601.0M. However, looking beyond, the communications platform as a service company is well positioned for sustainable 25%+ revenue growth for 5+ years. At the same time, we do not expect them to be profitable for next 2-3 years. It's growth profile is supported by increased usage during the digital transformation shift and more mainstream adoption of CPaaS solutions. While the stock still reflects a premium valuation, we believe it may be justified given the massive total addressable market. We like the platform business model that enables the company to offer building blocks that customers can utilize to redefine their customer engagement. Ignore the short term pressure, and we could see a solid return in next 3 years!
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