Stocks’ Details

Impinj, Inc

June 2020 Quarter Highlights: Impinj, Inc. (NASDAQ: PI) is a leading provider of RAIN RFID solutions focused on delivering information about everyday products to the digital world, thereby enabling the Internet of Things. For the June 2020 quarter, the company reported revenue of $26.5 million and GAAP net loss of $17.5 million. During the quarter, the company spent $10.66 million on research and development activities and $12.44 million on general and administrative activities. Over the quarter, the company’s results were impacted by the COVID-19 pandemic. At the end of the June quarter, the company had cash and cash equivalents of $97.48 million.

June Quarter Performance (Source: Company Reports)

What to Expect: The uncertainty around the COVID-19 pandemic is tampering the company’s third-quarter outlook. The company has plans to continue investing in research and development activities in order to enhance and extend its platform, including enhancing existing products, introducing new products and tightening the platform linkages between the company’s product offerings.

Key Risks: COVID-19 can accelerate a long-term shift in consumer behavior away from physical stores, which could impact demand for endpoint ICs over the longer term. The company’s investments are exposed to market risk due to the fluctuation in prevailing interest rates, which could reduce the yield on the company’s investments or their fair value.

Stock Recommendation: The stock of PI has corrected by 5.62% in the last three months and has provided a return of 8.13% in the last one month.  Although the company’s recent results have been impacted by the COVID-19 pandemic, the company’s long-term prospects look promising, considering the improving Endpoint IC bookings and accelerating large systems opportunities. Due to the improved visibility, insights, virtualization and customer experience provided by the company’s RAIN RFID solutions, the adoption of the company’s services is expected to accelerate in the long run. On a TTM basis, the company has an EV/Sales multiple of 3.8x, lower than the industry average of 11.9x, and thus seems undervalued. Considering, the aforesaid facts, we give a “Speculative Buy” recommendation on the stock at the closing price of $25.52, up by 4.38% on 1 September 2020.

CrowdStrike Holdings, Inc.

Growth in Subscription Revenue: CrowdStrike Holdings, Inc. (NASDAQ: CRWD) is mainly involved in providing cybersecurity solutions with its endpoint protection platform. Over the last one year, the company’s market share has nearly doubled, and it is currently identified as the fastest-growing endpoint security software vendor. During Q1 FY21, the company delivered 88% ARR growth and 105% subscription customer growth on year-over-year basis. Over the quarter, the company was able to reduce its GAAP operating loss and achieved a non-GAAP operating profitability for the first time in its history. The company’s total revenue stood at $178.1 million, up 85% on pcp, driven by the growth in subscription revenue. During the quarter, the company generated net cash of $98.6 million from operating activities. As on 30 April 2020, the company’s cash and cash equivalents stood at $1,005 million.

During the quarter, the company announced partnerships with Computacenter and Veronym, making the CrowdStrike Falcon® platform widely available for enterprise customers across Germany and to SMEs across Germany, Austria, and Switzerland.

What to Expect: For Q2 FY21, the company expects its total revenue to be in between $185.8 - $190.3 million. Further, the company expects its Non-GAAP net loss to be in the range of $3.8 - $0.7 million. For the full year FY21, the company expects its total revenue to be in between $761.2 - $772.6 million. The company intends to release its Q2 FY21 results on 3 September 2020, after market closes.

FY21 Guidance (Source: Company Reports)

Key Risks: The company is exposed to the risks and uncertainties of COVID-19 pandemic. Further, the company is exposed to the risks associated with new products and subscription and support offerings, including the risk of defects, errors, or vulnerabilities.

Stock Recommendation: The stock made a new 52-week high of $144.68 (intra-day) and closed at $143.69, gaining 14.28% as on 01 September 2020 with the market capitalization of ~$31 billion. The momentum in the “work from home” stocks was largely on account of the earnings surprise from Zoom Video Communications, Inc. (NASDAQ: ZM) which gained ~40.78% on closing basis on the same day. Looking at the past price movement, the stock of CRWD has seen a sharp rally, in-line with its peers. Over the last six months, the stock of CRWD has provided a return 154.40% and in the last three months, it has provided a return of 55.76%.

We believe that “work from home” stocks will continue to report decent set of earnings given the benefit arising from COVID-19 pandemic and CRWD remains one of the biggest beneficiaries of the risen culture of remote work. However, we cannot ignore the fact that the stock has risen manifold from its low of $32.12 in the month of March 2020. Hence, considering the recent price movement, recently announced partnership with Computacenter, and Veronym, fundamentals and financial health of the company and current trading levels, we have an “Expensive” rating on the stock at the closing price of $143.69 on 1^st September 2020. Any stock price correction and change in fundamental factors will require re-evaluation.

StoneCo Limited

Revised Terms for Business Combination with Linx: StoneCo Limited (NASDAQ: STNE) is a leading provider of financial technology solutions that allows merchants to conduct their business across multiple channels. On 1 September 2020, the company announced that it has entered into revised terms of a definitive agreement to merge its business with Linx S.A., a leading provider of retail management software in Brazil. As per the revised terms, the consideration has been increased to $35.10/share, representing a 47% premium to Linx unaffected VWAP 60-days. Further, the maximum break-up fee of the transaction is reduced to R$454million, equivalent to 7.2% of the transaction value. It is worth noting that this merger will accelerate STNE’s mission of empowering Brazilian merchants of all sizes to manage their businesses more effectively through technology.

Launched Follow-on Offering of Class A Common Shares: On 11 August 2020, the company launched a follow-on public offering of 27.375 million of its Class A common shares at a public offering price of $47.50 per share. The offering got closed on 17 August 2020. The proceeds from the offering will be used to finance the pending acquisition of Linx S.A. and for paying related fees and expenses, as well as for general corporate purposes. 

June Quarter Highlights: For the June 2020 quarter, the company reported Total Payment Volume (TPV) of R$38.1 billion, up 27.9% on pcp, despite COVID-19 effects and with accelerating pace throughout the months. The company’s Digital Commerce business performance was the major highlight of the quarter. The company’s total revenue and income stood at R$667.4 million, up 13.8% on pcp. Over the quarter, the company achieved an active client base of 519.4k, up 48.6% on pcp.

Operating and Financial Metrics for June Quarter (Source: Company Reports)

Growth Prospects: The company is currently focused on expanding its presence and becoming the main financial platform for its clients. Due to the strong re-acceleration of its business, the company is intensifying its investments and has started hiring new employees.

Key Risks: The company is exposed to the risks and uncertainties caused by the COVID-19 related restrictions. With regards to its proposed merger with Linx S.A., the company is exposed to the risks and problems that may arise in successfully integrating the businesses of the companies, which may result in the combined company not operating as effectively and efficiently as expected.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative) 

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Over the last three months, the stock of STNE has provided a return of 61.89% and in the last one month it has provided a return of 10.68%. The stock is currently inclined towards its 52 weeks high of $55.0. This could mean that the stock has already factored in most of the positives of the company.  For the June 2020 quarter, the company’s debt to equity multiple stood at 0.79x, higher than the industry median of 0.51x. We have valued the stock using the Price to Earnings multiple based illustrative relative valuation method and have arrived at a price correction of high single-digit (in % terms). Considering the aforesaid facts, coupled with expected developments with regards to the ongoing business merger with Linx S.A., and current trading levels, we suggest investors to avoid the stock at the closing price of $52.81, up by 3.55% on 1 September 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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