The beautiful thing about a Compounding Machine?
It’s a gift that keeps on giving.
I think this will also be the case for our next buy.
The story of the company began in 2002. Two students, Mariusz and Szymon were frustrated by the fact that there wasn’t an effective way to communicate with website visitors. They decided to take fate into their own hands and created their own company.
While still studying, Mariusz and Szymon ran their business from a small apartment in Wroclaw, Poland. They were truly passionate about coding and changing the world of online customer communication. Their software products gained some attention but they encountered a lot of challenges. As a result, the company was still loss-making in the early days.
But things changed soon. A true breakthrough took place when the company officially launched its live chat solutions in 2003. They quickly became one of the pioneers in the market for live chat software and they gradually transitioned to a Software as a Service (SaaS) company.
What Mariusz and Szymon have done is a beautiful example of the underdog that became a market leader. Two Polish entrepreneurs managed to build a better product than large US tech companies from their modest student venture in Wroclaw. Today, the company is worth more than $660 million.
Over the past few years, the stock has been a Compounding Machine. Since its IPO in 2014, They compounded at 25.1% per year.
The fundamentals of the company look great:
💵 The company has more cash than debt
📈 A ROIC of more than 200% (!)
💸 Translating 50% of its revenue in pure cash
But the most important thing? The company is valued very cheaply.
They trade at a forward PE of 12.3x versus a 5-year average of 22.6x.
This means that the business is undervalued by almost 50% compared to its historical average!
Our Earnings Growth Model indicates that the stock should be able to return 14.5% per year to shareholders in the years to come.
And that’s exactly why I think this company is an interesting investment today.
Here’s a onepager with the basics of the company.
Click on the picture to expand:
Every company within the Portfolio gets a Quality Score based on 15 metrics.
Finally, the company gets a ‘Total Quality Score’ which is simply calculated by taking the sum of the score of all 15 metrics and dividing it by 15.
As you can see in the table below, This business gets a Total Quality Score of 8.2/10 (which is very good).
On Wednesday this week, I bought this company for 3% of the Portfolio.
Here’s an overview of all positions:
That’s it for today.
I hope this article helped you to understand the rationale about why I bought this company.
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Happy Compounding!
Pieter (Compounding Quality)
That’s it for today.
Whenever you’re ready, here’s how I can help you:
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