Thursday, 17 August 2017

Recent FinTech Partnerships Bode Well for GH Capital

GH Capital Inc. (OTCBB: GHHC)
Technology; FinTech; Buy - Risky

VMoney exposes the company to online money transfer market. Allied Wallet partnership will increase the company’s visibility in Germany and Austria. Downside is already priced in as evident from current stock price.

FinTech is an evolving space with new and innovative methods of financial services endlessly coming to the market. Growth of online businesses is fueling the need for additional and efficient financial transaction solutions. Consumers are always looking for convenience when it comes to shopping and related payments. This changing dynamic is what’s driving FinTech’s innovation and growth.

Sunday, 18 June 2017

Synaptics: Buy the Dip

Synaptics Inc (NASDAQ: SYNA)
Technology; Human Interface Solutions; 30%-50% Upside

IoT exposure, strong margin and cheap valuation put the company in value territory.

Synaptics Inc. (SYNA) lost more than 20% of its market cap in the last five days after acquiring Conexant Systems and Marvell Technology Group (MRVL) for a cumulative cash compensation of $395 million along with share-based compensation. You can see the detailed update here.

Synaptics also narrowed its midpoint revenue guidance for the fourth quarter of 2017. Cash spending, dilution and guidance revision were all too much for the market, and the reaction was ugly for Synaptics’ shareholders. The selling was not completely rational as the market just focused on the bad side and ignored the good one.

Tuesday, 6 June 2017

You Can Benefit from GH Capital’s Online Payments Growth

GH Capital Inc. (OTCBB: GHHC)
Technology; FinTech; Buy - Risky

Growth in online retail is reshaping industries, especially FinTech. Retailers are always looking for new, secure and cost effective payment systems. Adoption of internet retail has benefited many online payment service infrastructure providers including PayPal (PYPL), Mastercard Inc (MA) and Visa Inc (V). The growth story in the industry is so attractive that all star growers of the last decade are trying to get in to the payment game. Apple (AAPL) Pay, Google (GOOGL) Wallet and Amazon (AMZN) Pay are all evidence of potential lucrative growth in the payment market.

However, online payments are shifting towards more secure and hassle free payment methods like Online Banking Electronic Payment, or OBeP. GH Capital Inc. (GHHC) is exposed to the growth of online banking electronic payment industry through its subsidiary ClickDirectPay. The company is focusing on the European payment market, which has witnessed the highest adoption of OBeP services. Further, the company is positioned uniquely amid its creative pricing structure. The growth of OBeP industry along with merchants’ willingness to switch for costs advantage makes GH Capital Inc a good buy candidate in the OTC space. Details follow.

Friday, 24 March 2017

Add a Little Online Payment Exposure to Your Portfolio

GH Capital Inc. (OTCBB: GHHC)
Technology; FinTech; Buy - Risky

Online banking electronic payments are set to grow. Exposure can be achieved through GH Capital Inc. Online payments are set to evolve over time. OBeP is expected to witness double digit growth. Europe is the current playground for OBeP companies. Investing is problematic given Sofort and iDEAL are currently private. However, exposure can be achieved in OTC market through GH Capital Inc, which has one of the key advantages, cost.

Wednesday, 22 June 2016

Tesla Plans to Acquire SolarCity: Time to Short the Stock

Tesla Motors (NASDAQ: TSLA) recently announced to acquire Solar City (NASDAQ: SCTY), a provider of renewable solar energy for residential and commercial customers. On the surface, the rational is the vertical integration related to the combination of two businesses, which could prove beneficial for Solar City in the competitive solar market. But, there are many caveats that come with the deal, if it goes through.

Tuesday, 27 October 2015

It's Time to Short Ultimate Software

The Ultimate Software Group. (NASDAQ: ULTI)
Technology; Internet Software and Services; 30%-50% Downside

The HCM industry is set to grow in the coming years. But the market has very high expectations, which can't be met by single-digit growth of the industry. Hyper-optimism around the industry will come to an end once the companies deliver less rosy results in the coming years. Ultimate Software is the most expensive company in the space with the highest PE, but it lags in revenue growth compared to some of its counterparts. The company isn't a clear leader, as Workday and SuccessFactors lead the pack on several instances. Insiders and institutional investors are reluctant to buy, which is an indication of imminent reversal. Not a single valuation scenario reveals any upside; average of all price targets reveals 39% downside.

Thursday, 22 October 2015

Momentum Alert – VeriSign Is Heading South

VeriSign, Inc. (NASDAQ: VRSN)
Technology; Internet Information Provider; Sell

The company's stock is trading at its two year high. Standard moving averages are demonstrating a bullish momentum. But, SMAs, as an indicator, fail to indicate reversal. That's where RSI comes in. VeriSign touched an RSI of 70 a few days back, which is an indication that the stock is over-bought. But, more importantly, the chart is demonstrating bearish divergence. See the chart below:

The chart clearly depicts a bearish divergence, which is a strong reversal indicator. We think that it's time to take profits and stay at the sidelines. VRSN is also announcing, today, its earnings for the quarter ended September, 2015. It's wise to stay on the sidelines as soft guidance can hurt the stock price given the technical position of the chart.

Monday, 19 October 2015

Valuation – Time to Sell Facebook

Facebook, Inc. (NASDAQ: FB)
Technology; Internet Information Providers; Sell

It's time. Facebook is trading around an all time high of $98. The stock is getting ahead of the fundamentals now. Forward earnings of $2.75 translate into a PE of 35.8, which is above the consensus five year earnings growth of 28%. 

Our EVA model reveals a price target of $96.5 given earnings growth of 28% during the next five year. DCF valuation indicates a price of $83. Based on our valuation, we think that the stock is priced for perfection. Unless, there's some major progress related to virtual reality or Whatsapp monetization, investors should cash out and stay on the sidelines.

  • EPS is assumed to grow at CAGR of 25% during 2016-2020 in line with the consensus estimates. 1% growth is assumed in perpetuity
  • Earnings are assumed to increase  the total cost of equity.
  • CAPM is used to calculate the cost of equity. S&P 500 is used as a proxy for the return on market.


Observation: The stock gained 25% during the trailing twelve months. Now, the EVA based valuation indicates that Facebook has reached its fair price. As Facebook is trading ahead of its fair value, investors should channel their funds somewhere else.

Momentum Alert – Level 3 is Heading Higher

Level 3 Communications, Inc. (NYSE: LVLT)
Technology; Diversified Communication Services; BUY

The company's stock price has moved above the 25-day SMA and 50-day SMA in the past few weeks, indicating bullish momentum. Not only this, LVLT's chart also demonstrates a bullish divergence, which is a strong indication that the stock will head higher. With RSI standing below 70, there's room for a strong rally in coming weeks.

Based on fundamental, we rate Level 3 a strong buy. The company is exposed to the double digit growth prospects of IP traffic. Increasing bandwidth requirements enabled through high quality video content consumption bodes well for LVLT. Further, the growth is quite reasonably priced. Earnings are expected to grow at 65% p.a. during the next five while the stock trades around a forward PE of just 20. All in all, LVLT is a good pick in growth at a reasonable price arena. 

Saturday, 10 October 2015

Texas Instruments: Differentiation, Apple Content Concentration And Cost Savings

Texas Instruments (NASDAQ: TXN)
Technology; Semiconductors; BUY

Analog ICs will witness the fastest semiconductor growth rate in coming years. TXN is a major provider of analog ICs. Product analysis reveals differentiation; IC count increased in iPhone 6s. Transition to 300mm will bring cost savings; valuation reveals 25% asymmetric upside.

TXN generates majority of its revenue from the sale of its analog ICs. For the past couple of years the company has been producing more than 50% of company’s total revenue from this particular segment. This indicates that the company relies significantly on its Analog operations for the majority of its sales. In 2014, TXN was the leading supplier of Analog ICs with a market share of 18%. Analog operations contributed 62% towards total revenue while embedded processors and other products contributed 21% and 17% respectively.

Based on the current price, we believe that TXN adds considerable value to investors’ portfolio given the introduction of new differentiated products, 200 mm to 300 mm wafer fabrication transition plan, improving CSR position, re-allocation of resources and increased chip count in Apple’s products. Our valuation model also demonstrates significant upside potential. Overall, Texas Instruments is a decent buy. 

Thursday, 10 September 2015

Downturn Fears: Should You Own Wal-Mart Or Dollar General?

Discount retail stores perform well during low times. Consider Wal-Mart for its strong cash flow, dividend and neighborhood stores. Avoid Dollar General amid increasing competition. The market has been in a bearish mode for some time now. Volatility has been favoring the downside for the past few weeks. The bearish trend is justified on some level given the lofty valuation of the technology sector, but it's not fair to blame it on technology alone. Oil prices have been hurting the energy sector while materials are being affected by fears related to a global economic slowdown. However, retail can be a good place to be in during an economic downturn. Discount retailers are a good place to start. 

Dollar General can grow its sales given the unique nature of its business model. The company is mostly witnessing growth through the opening of more locations. Eventually, the growth will halt as cannibalization comes into play. Wal-Mart, Target, Amazon and Dollar Tree will put pressure on the top-line growth of Dollar General as switching costs are zero. Brand recognition will be key for sales growth, and we believe Wal-Mart will outperform Dollar General in a heartbeat in a given neighborhood. Yes, Wal-Mart is lagging in terms of small-box footprint but it has the resources to materially hurt the sales of Dollar General's stores. In the past, hyper retailers were focused on supermarkets but the shift in strategy is getting clearer, which is the biggest threat to Dollar General. Given the stock is fairly priced, we think investors should not take the risk of confronting the competition. All in all, we favor Wal-Mart over Dollar General in discount retail.

Wednesday, 9 September 2015

Valuation - Buy Micron Now

Micron Technology, Inc. (NASDAQ: MU)
Technology; Memory Chips; 75%-100% Upside

  • EPS is assumed to grow at CAGR of 10% during 2016-2020 despite a consensus of 15%. Zero growth is assumed in perpetuity
  • Earnings are assumed to increase total cost of equity.
  • CAPM is used to calculate the cost of equity. S&P 500 is used as a proxy for the return on market.

Observation: The stock lost around 32% of its value  during the last three month. However, the EVA based valuation  indicates that the market may be over reacting. The stock has the ability to touch $40, translating into more than 100% upside. 

Monday, 24 August 2015

Will This Sell-Off Continue?

The U.S. stock market is plummeting on China’s growth concerns. There are factors in play other than China also, think overpriced earnings. S&P 500 seems overpriced, and technical indicators show no sign of reversal just yet. The stock market has been in a rut for past few weeks now; it's getting a harder hit today as NASDAQ composite is down 2.5% and S&P 500 is down around 2.3%. The blame of the recent bearish market fell on China's slowing growth, crowded emerging markets and FED's plan to raise interest rates. However, interest rates are on their historical lows; unemployment stays at the ground and corporate profit margin are touching the roof. China, alone, can't be blamed for the sell-off. Sure, the slump in the Chinese market acted as a trigger for the global downward trend. But, this is not the only reason for the current market decline.

Friday, 21 August 2015

Valuation – HCA is Underpriced

HCA Holdings. (NASDAQ: HCA)
Healthcare; Hospitals; 10%-15% Upside


  • EPS is expected to grow at CAGR of 11% during 2015-2019. 0% growth is assumed in perpetuity.
  • Retained earnings are projected to turn positive during 2018
  • CAPM is used to calculate the cost of equity. NASDAQ composite is assumed to reflect the return on market.

Observation: The stock lost around 6% of its value  during the last month. However, the EVA based valuation  indicates that the market may be over reacting. The stock has the ability to touch $100, translating into a 15% upside.

Detailed thesis and Monte Carlo simulation is available on Prudena. 

Wednesday, 12 August 2015

AT&T Will Benefit from DirecTV Acquistion

AT&T, Inc. (NYSE: T)
Technology; Telecom Services; BUY
Due to the increase demand for smart phones and tablets, wireless communication industry is expected to grow. This growth will spur many opportunities for wireless communication players especially through data consumption. AT&T has positioned itself well amid DirecTV acquisition. It will bring-in tremendous benefits in terms of lower costs and increased market share. The main challenge for the company will be the falling demand for its wired communication services. AT&T will need to divert its resources from the legacy voice services to other profitable sections in order to keep its competitive position intact. Overall, strong financial position and a dominating share in the U.S. wireless communication market along with the recent acquisition makes AT&T a value adding investment.
Demand for telecommunication will be driven by the market for cellular products including smart-phones and tablets. IDC predicts that the market for U.S. smart-phones will grow in the future but at a slower rate. The firm predicts a CAGR of 5.3% between 2013-2018. Reuters predicts a rising trend for U.S mobile data traffic by 2018 as more people shifts from laptops and PCs to smart-phones and tablets.

AT&T is a market leader along with Verizon in the wireless communications market. Currently, the company has captured 31.2% while Verizon controls 33.7% of the total wireless subscribers base. A combined market share of nearly 65% leaves the two company in a duopoly position which enable them to control prices and margins. Due to AT&T’s significant position in the market, we believe the company is in a great strategic position to turn future opportunities from growth in smart-phone shipments and mobile data traffic, into profits.

AT&T recently completed its acquisition of DIRECTV, a multinational pay TV provider. Through this combination, the company intends to capture the video entertainment market by providing efficient video delivery platform to millions of additional households through its mobile and high speed internet service. Management expects cost synergies will exceed $1.6 billion by end of the third year of closing the deal. The acquisition will also allows the company to penetrate into Latin America since DIRECTV has a leading presence their. The acquisition of Nextel Mexico and GSF Telecom further allows AT&T to extend its subscriber base, regionally, by capturing more Latin America consumers and businesses. AT&T’s recent acquisitive strategy focuses on spreading its coverage to more than 400 million consumers and business in Mexico and the United States.

The demand in the wire-line telecommunication sector is dropping, especially on the consumer side, due to the shift of consumers to wireless communication. A report by Ibisworld states that with increasing number of households using wireless phones, revenue from fixed local and long distance services is expected to decline over the next 5 years. IDC believes VoIP and broadband services will stay in demand but these gains will not be enough to overcome revenue losses from fixed voice services. Considering wireline products and services form 45% of the company’s revenue, falling trends in the wireline products, especially from fixed voice services, will have a negative effect on AT&T’s future earnings. The popularity of 3G and 4G can cannibalize the company's wire-line internet business.

AT&T faces stiff competition from its competitors Verizon and T-Mobile. T-Mobile's un-carrier strategy is leading to prices wars which will put pressure on industry profits. The recent launch of T-Mobile’s simple choice plan with mobiles without border will provide more cost efficiency for consumers compared to options from AT&T, Sprint and Verzion. Furthermore, T-Mobile’s Jump on demand phone leasing plan for Apple users bodes ill for competition as t-Mobile tends to attract maximum iPhone users for the next iteration of the iPhone. Further, AT&T is trading at a premium to its larger counter part, Verizon.

A slightly different version with a valuation focus appeared on Prudena.