Outperforming firm Primecap Management said Thursday that it increased its position in Pros Holdings Inc. (PRO, Financial) by 55.07% on June 30.
In the transaction, Primecap purchased 678,491 shares of the company, boosting its holding to 1,910,491 shares. The amount makes Primecap a 5.96% stakeholder in Pros Holdings.
Primecap has been buying the stock as the price has increased, enjoying a sizable gain. It started the position in the fourth quarter of 2017 when the price averaged $25. It then doubled the holding in the first quarter at a price around $31. The buy announced Thursday took place around $37, giving Primecap an estimated return around 27% on the stock so far.
Though often avoiding the media, the firm has returns more visible funds would tout. Primecap’s Odyssey Fund gained 25.96% in 2017, exceeding the 21.83% return in the S&P 500. Since its 2004 inception, it has given its investors a 10.76% annualized return versus 9.02% if they had invested in the index.
Its Primecap Growth Fund excelled with a 32.05% rise in 2017 and 11.8% annualized return since inception.
In its investing approach, Primecap seeks companies with stronger growth potential that their valuations suggest and that trade at reasonable prices. Its largest holdings are Adobe Systems Inc. (ADBE, Financial) and Eli Lilly & Co. (LLY, Financial).
With a portfolio of 286 stocks valued around $133.27 billion, Primecap’s favored sector is tech, which composes 34.9% it and includes Pros Holdings.
Pros Holdings, with a $1.28 billion market cap, offers cloud software that enables dynamic, real-time pricing for companies such as Greyhoud buses and Southwest Airlines. The company has had a challenging few years on its bottom line while investing in its business, with its net losses deepening annually since 2014. In 2017, it reported $77.9 million, a decrease from $74.8 million in 2016.
But Pros Holdings has several avenues for potential growth. Since 2015, it has been successfully transitioning out of an on-premise license model to a subscription-based cloud model. It has also tapped into the growing online retail market, offering personalized and seamless buying experiences to replace advice from live sales representatives.
“While we incurred losses in the first quarter of 2018, we believe our market is large and underpenetrated and therefore we intend to continue investing to grow our recurring revenue and support our long-term initiatives,” the company’s second-quarter 10-Q read. “We plan to continue to invest in product development to enhance our existing technologies and develop new applications and technologies.”
Its strategy drove robust improvements in its top line in 2017 after two years of declines that pressured its share price. Pros Holdings recorded revenue of $47.9 million in the first quarter, a 19% increase from the same quarter a year earlier. Subscription revenue reached $21.0 million, a 72% increase.
Pros Holdings is guiding for a 14% year-over-year increase in revenue for the second quarter and 12% growth for full-year 2018.
Up 2.82% Friday, shares of Pros Holdings trade near a 10-year high at $39.34. The company has a price-sales ratio near a three-year high at 6.92. Mariko Gordon (Trades, Portfolio), founder of Daruma Capital Management, also has a stake, with 5.52% of shares outstanding. Jim Simons (Trades, Portfolio) sold out of the company in the fourth quarter.
See Primecap Management's portfolio here.
