Low Profile, Yet Everywhere
Micros provides enterprise applications and software for the food and beverage, hotel and retail industries worldwide. With market cap slightly under $4 billion and presence in all more than 180 countries, this is certainly a company to keep under your radar; especially since Joel Greenblatt (Gotham Capital) and Jeff Ubben (ValueAct Capital) have been increasing their participation in this company by sizeable portions lately. But, what do these investment gurus see in Micros?
Well, for starters, the company is an established market leader in the segments in which it competes. This position, added to high switching costs, a wide product portfolio (which includes several mobile hosted/enabled products) and scale-related cost advantages bode well for the company´s future. And, although cloud-based solutions could impact the firm's profitability over the longer term, its scale and current market position allow big capital expenditures to keep ahead of possible competitors.
Going forward, most growth opportunities derive from overseas markets, like Europe, and the penetration into other verticals, other than restaurants and hotels. The recent acquisition of Torex is certainly a step in this direction (Morningstar). Despite the fact that the purchase impacted the margins, the pressure is derived from the integration costs. However, the top-line grew and margins are expected to improve over the upcoming quarters.
Trading at 23 times its earnings, and more than a 45% discount to the industry average, this is certainly a stock to consider adding to your long-term portfolio. Continuous stock buy-back programs enhance shareholders’ value and could drive EPS growth over the next few years.
Salesforce.com provides enterprise cloud computing solutions (principally a suite of on-demand CRM applications). Expected to widely outperform the industry, delivering average annual EPS growth rates around 30% over the next five years, is this stock a buy at its current valuation? Frank Sands, at Sands Capital Management, seems to believe so: A few weeks ago, he tripled his participation in the company, now standing as the second largest institutional shareholder, after Fidelity Management. And it doesn´t look like he was wrong in doing so: Since the purchase, the stock is up about 19%. Lee Ainslie, at Maverick Capital, also bought into the company recently, and has perceived the same upside as Sands, since.
After posting strong quarterly results last week, the stock price rose by more than 12%. However, trading at 114 times consensus earnings, at more than 10 times the industry average, there still seems to be upside potential left for those willing to pay the premium.
The main reasons to believe in Salesforce.com´s future stem on its leading market position and strong brand name, which should increase cross selling capabilities and help it penetrate new market segments more easily. The other great advantage that the company holds derives from having built its applications in the public cloud. This has led to lower costs (and therefore, lower prices) and lead over major competitors like Oracle and Microsoft.
Above I looked into two promising stocks in the software segment. Although both of them look like appealing long-term investments, the main reasons to believe this differ. While Micros offers reasonable growth at a discount price, Salesforce.com can deliver above average growth rates but trades at a substantial premium to its peers. Overall, it´s a matter of choice. From my perspective, the greater balance between prospects and valuation that Micros offers makes it the most attractive choice. Nevertheless, adding both of the to your portfolios would not be a bad idea.
[b][/b] Disclosure: Damian Illia holds no position in any stocks mentioned