Have been waiting for an opportunity like this.. My list (in no particular order):
- PME
- XRO
- WTC
- TNE
- HUB
- OCL
- GTK
Would also add NWL and CAT to the list but I am already overweight these 2.
IMO all these business should be earning much more in 5 years time so am ready to deploy throughout weakness.
I now have 3 stocks on this list: CAT, RTH and (new) PME
Others have covered PME really well on here, very helpful as always, thank you
My 2 cents: this is a stock that I have followed for several years. Never thought I'd be able to buy it. Psychologically, I HATE high PE stocks, although dropping 60% plus from all time highs makes it easier for me to stomach.
PME is such a high quality company, with such a long growth runway, that I think it might actually be worth it's multiple. I bought small amounts yesterday and today, and will continue buying more on further weakness.
I'm not in the least bit worried about AI disruption. Radiologists will still be viewing scans in 20 years. AI will augment their work and make it more efficient, but won't replace them any time soon.
As long as I am correct (re AI disruption), this is a fantastic business at a fair price.
Time will tell
An after market release by PPS. Usually that signals bad news from my experience but this one might be an exception.
So after a few days of investigations, my Saas buy-list is now down to one stock: CAT. Also probably RTH, if I didn't already hold quite a lot (and if you count it as Saas).
Both VGL and FCL didn't quite make the grade for me.
Briefly:
VGL (provider of software for cinema chains and film) has some promising attributes. It is the clear market leader. It's product fills a clear market need - makes sense for one software provider to invest in developing best-in-class software, rather than each chain trying to make their own. It is growing and inflecting into profitability. Unlikely IMO to be affected negatively by AI. What put me off, is that the growth has been uninspiring and the overall industry is challenged and quite likely to shrink in the future. The current share price is still not that cheap, and implies growth at least at similar, if not faster rates than recent years. But this is a cyclical industry, and some of the recent growth was bounce-back from COVID. VGL management have put out an aspirational target ("long term" but with no clear target date) of revenue of $315 million NZD and an EBITDA margin of 35-37%. To achieve this would require some pretty heroic improvements in both revenue and profitability. I can't personally see it happening in less than 5 to 7 years. Even if you assume that they meet the targets (for me a best case scenario) the share price would only be worth about double what it is now, once you discount for passage of time. So many things could go wrong in 5 to 7 years, it just didn't seem an attractive risk/reward to me.
FCL (software for the insurance industry). Again, this one has some attractive features. Large clients, sticky revenue. Unlikely to be disrupted by AI. Getting close to profitability. But growth over the last few years really hasn't been that great. And again the share price still isn't that cheap. To cut a long story short, it just didn't make the grade for me vs other opportunities.
I would far rather own CAT or RTH than either of these two. My overall impression so far, looking for opportunities in the software industry, is that prices for many companies have fallen from "completely ridiculous" to "still quite expensive". Definitely XRO, WTC and PME are in this category IMO. Consequently my buy-list is disappointingly short
I thought it would be useful to get others opinions re Saas buying opportunities
I personally love moments like this, where the market settles on a narrative "AI is going to kill software companies" and indiscriminately sells off everything.
I'm going to post about 3 companies that I am looking at buying. I'm sure there are more. Wish I had more time right now (work + kids sports both super-busy, bad timing)
1. CAT
This one is no stranger to Strawman. The price has more than halved (from what was probably a bit of over-exuberant peak). I just don't see CAT as being vulnerable to AI disruption. It collects data from devices, video etc and integrates it. Still growing fairly rapidly and adding to its impressive list of professional sports teams
2. VGL
Vista Group. Much less known on SM. Provides software to the cinema and film industries. Had some tough times over COVID, but now growing well and inflecting into profitability. Share price was trending up prior to "software-geddon". Quite cheap on EV/revenue of 2.8. I don't see it as vulnerable to AI, provides a full range of services including ticketing, food sales, billing, advertising, film distribution etc. Downside is that revenue is tied to the cinema industry's fortunes (ie cyclical)
3. FCL
Software for insurance companies. Mission critical and (again) not particularly vulnerable to AI IMO. Similar to VGL, the share price had been improving prior to "software-geddon", on improving results and inflection to profitability. Also cheapish, on EV/revenue a bit over 3. Very sticky clients.
Very keen to hear others thoughts on the above, plus other opportunities