$ETWO

$ETWO (3/1/25)

• What they do? End to End cloud based supply chain management software. Thoughts: Already something thats going to be hard for me to confirm moat, competition, value, etc.
• MC: 778M, EV 1.7B, 151 M cash, ~1.4B debt
• Significant 50-60% revenue growth through 2023 that slowed in 2024 and TTM. Net income has remained negative, however operating cash flow is positive, but not growing. The majority of this difference is found with impairment of goodwill. This typically means management overpaid for acquisitions, and are now realizing they cannot get as much value from them as expected.
• "Client retention" as a significant challenge is not something I like to see.
• PE 12, EV/FCF 34,
• Shares outstanding, diluted the company 50% from 2021-2023. No dividend.
• -24% earnings yield, Greenblatt ROC -657% (eliminates goodwill) while ROIC shows -1%.
• Mgmt: No significant share holders other than chairmans Chinh Chu ($22.7M), no significant open market buys, CEO Andrew Apple has $28 M comp plan based on stock/options tied to revenue growth and EBITDA.
• Thesis: 1.7 Billion for a company making 74 M in operating cash flows TTM is expensive vs other investments I hold. Despite potential opportunity for hidden value behind the goodwill impairments EV/FCF gives a good picture with ratio of 34 and minimal growth in recent quarters. A lot of risk is already priced in, and if goodwill impairment is done could see re-rate on positive numbers showing through. My opinion is it would need growth as well though.
• Guidance into 2025 for revenues of ~600M on par with prior.
• Conclusion: No reason to purchase this stock with no growth, trading at EV/FCF of 34x. It is exciting to try and find hidden growth behind the goodwill impairments, but at least for now doesn't seem to be the case.