HI there,
I've answered a few questions on ABST - here is a summary of my previous responses from from over the past month or so
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Pros
- After years of missed estimates, it has beat on earnings in 9 of the past 12 quarters - signs of turning things around.
- Revenue is almost entirely subscription based and is highly predictable with 80-90% of a typical year’s billings through contract renewals and expansions
- Customer base is ~70% Enterprise and Government - 31% of which is Education. Defensive industries which are more and more reliant on tech.
- Pays a dividend - not many tech companies pay a dividend.
Cons
- Trading a high valuations: 44 times forward earnings - true the entire industry is soaring, but ABT's expected growth rates don't justify current valuations
- Speaking of growth rates - EPS and Revenue is expected to grow at a mid-to-high single digit clip over the next few years. This is at the low wend of industry averages.
- Although recent performance has been positive, historical track record of execution has been spotty.
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Since my last response, the company has changed tickers and began trading on the NASDAQ in late October. It priced its U.S. offering lower than expected (USD$11.00 - CAD$14.72) a sign that the U.S. markets felt the company was richly valued. This was inline with my own thoughts on the company. It looks like a solid tech company, but valuations got ahead of themselves given the expected growth rates. Of note, the company has not reported earnings since this previous answer, so there is no change in terms of performance related to results.
In terms of valuation - I have mixed feelings on its valuation. It is trading at 46 times forward earnings (expensive), 5.35 times sales (reasonable) and has one of the highest PEG ratios (10.05) among its peers. Earnings are expected to grow an average of 16% and revenue is expected to jump by an average of approximately 8% over the next couple of years. The company has dropped (-17.8%) from a high of $18.53 which it achieved in mid-October as a result of what I would say is general market sentiment towards tech, and the lower than expected IPO pricing.
The good news is that the recent dip in price means it is now better valued. I still find it a little expensive, but it is a solid tech company. Of note, the company releases earnings on November 9 and investors should be weary of picking up shares this close to quarterly results. Absolute has a spotty (yet improving) history as compared to estimates and the price could move in a big way. When buying near earnings, I typically always take a fractional position before earnings and top up after earnings. I am OK with giving up some upside in the event the stock soars on earnings as it is inline with my risk tolerance.
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Since these two answers, the company has corrected and is down by more than 10% over the past month as it came of quarterly results that missed estimates. In the quarter, earnings dropped to $0.06 per share (from $0.08 previously) and revenue grew by 11% over Q1 of fiscal 2020. This snapped its streak of consecutive earnings beats. The company is also seeing some downgrades in terms of next year's earnings expectations.
It was a decent quarter, nothing mind blowing and nothing to change my mind that it is a good company trading at valuations that I find a little expensive here. This is despite the fact, it has given up some gains and is a little downtrend. It is nowhere near oversold territory, so there could still be some technical downside. That however, is over the short term.
Mat