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Two Beaten-Down Tech Stocks To Buy Now (Cestrian Stocks Bulletin #15)

Two Beaten-Down Tech Stocks To Buy Now (Cestrian Stocks Bulletin #15)
By Cestrian Capital Research, Inc • Issue #15 • View online
DISCLAIMER: This note is intended for US recipients only and, in particular, is not directed at, nor intended to be relied upon by any UK recipients. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Cestrian Capital Research, Inc., its employees, agents or affiliates, including the author of this note, or related persons, may have a position in any stocks, security, or financial instrument referenced in this note. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note’s date of publication and are subject to change without notice. Companies referenced in this note or their employees or affiliates may be customers of Cestrian Capital Research, Inc. Cestrian Capital Research, Inc. values both its independence and transparency and does not believe that this presents a material potential conflict of interest or impacts the content of its research or publications.
As everybody knows, it’s all over for tech. Value is the new growth and inflation is the harpoon that has burst the market bubble for a generation. So when you are mooching about in the rubble of great tech companies whose stocks are down 60% or more from their highs, you won’t want to buy them, right? Because those highs are never coming back again. Like, ever. It’s just crazy talk to say they might. Seriously, this was true in April. And it’s still true now. Sheesh.
Is the Eeyore contingent right? Maybe. But we have to tell you that in the decades we’ve been investing in tech, every time a pullback sets in, doomsayers fill the airwaves with tales of fear and woe. And in the modern era not just the airwaves but also Twitter, StockTwits and any other stock boards you can think of. The message is always the same. If you invested in these high growth names that just fell, you were dumb and deserved it. Of course company X isn’t worth Y times sales. You idiot! is the implication. How could you have paid that!!
Now we aren’t sure how many Great Comebacks tech has to make to do away with these Eeyore types but we have to tell you that we are very confident that growth will come roaring back into fashion in the not too distant future. In literally every single prior high, if you zoom out far enough and look in the rear view mirror, that former high - be it 1999, 2007, 2018 … they all now look paltry for the best names. So if you bought the best names at that February 2021 high, there’s a very good chance it works out just fine if you’re patient.
In addition, if you have a few bucks to hand and you want to put some of them to work in names that have been handed a thorough beating by the market lately, here’s two ideas for you. We’ll keep them brief. They’re excerpts from ideas we’ve shared in our pay services recently. Members of those services got the full story at the time. But even though time has passed, we believe these names remain compelling buys at the present time.

Two Market Undarlings
First up, Vertex, Inc. VERX is a tax software business that virtually nobody has heard of. It has like four followers on Stock Twits. And the stock has executed a neat swan dive, nay kamikaze barrel roll, since its IPO. Even better, Morgan Stanley just vomited all over the name. Which means that at its current price of $18 and change, or just 6x management’s guided FY12/21 revenue, this 10% grower with very sticky revenue, 21% TTM EBITDA margins and its position cemented as one of two pureplay ways to play the rollout of online sales taxes (the other is Avalara, AVLR), can be yours for what we believe is a very attractive price. We said as much Thursday in our Stock Twits Premium Room service when the stock was in the $16s - it ran up 14% on Friday which was a nice surprise. There’s plenty still to come in our view.
Second, nCino (NCNO). Another cloud software business that nobody has heard of and indeed where folks start yawning and looking over your shoulder when you start to tell them ab… HEY! CONCENTRATE!!! - about it. In brief - cloud based banking software. Land and expand strategy. Salesforce.com progeny. Often starts as a departmental sale doing stuff like loan processing workflow (told you it was boring!!). We think this can be to banking what Veeva Systems is to life sciences, ie. the industry standard cloud app, given a little time. Right now the stock has sold off some 49% from its all time high. The market is asking you to pay 21x TTM revenue for a company growing recognized revenues at 47% on a TTM basis, with 13% TTM unlevered pre-tax free cashflow margins, and best of all (by the way not many folks have noticed this part), remaining performance obligations (orders already won) of 3x TTM revenue. In other words we aren’t worrying about this thing falling off a cliff any time soon.
So there you have it. Two beaten-down tech names to grace your Sunday. We own both in staff personal accounts here at Cestrian Capital Research. We’ve been adding VERX lately and we’ll probably add to our NCNO holdings this coming week two.
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Cestrian Capital Research, Inc - 16 May 2021.
DISCLOSURE - Cestrian Capital Research, Inc staff personal accounts hold long positions in AVLR, CRM, NCNO, VEEV, VERX.
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