Globant SA (GLOB, $102.07): “Huge Growth With Globant’s Disruptive Technologies”
By: Vicente Cabrera, AIM
Student at Marquette University
Disclosure: The AIM Equity Fund
currently holds this position. This article was written by myself, and it expresses
my own opinions. I am not receiving compensation for it and I have no business
relationship with any company whose stock is mentioned in this article.
Summary:
• Globant SA (GLOB) engages in the delivery of information
technology services; providing innovation, maintenance, and testing services
for clients. GLOB software products help connect their clients with millions of
consumers and employees and strives to improve their clients’ efficiency.
• GLOB has four main
business segments: Media & Entertainment (24% of FY18 revenue), Banks,
Financial Services & Insurance (22%), Travel & Hospitality (17%), and
Technology & Telecommunications (15%).
• GLOB generates a
majority of its revenue from the United States (78% of FY18 revenue) followed
by Spain (5.8%), Chile (4.7%), and Argentina (3.6%).
• The company’s goal is to become a leading provider in the
information technology that continues to leverage the latest technologies in
the digital and cognitive space to help transform their clients
technologically.
• The company has been achieving this goal by growing
revenues with existing and new clients, creating innovative software solutions,
obtaining highly qualified and trained employees, and successfully pursuing
strategic acquisitions.
Key points:
• On May 22, 2019 Argentine Congress passed a bill approving
a new tax benefit consisting of a promotional
Knowledge Economy regime. This bill will promote economic activities that are
knowledge-based by reducing the total amount of corporate income tax to
companies like GLOB that endures expenses in the software research and
development activities. This regime will be in force from January 1,
2020 until December 31, 2029. This bill will create fiscal stability for
federal tax purposes, a reduced corporate income tax rate of 15%, and tax
credit certificates. Currently, there is a similar incentive in place called
Software Promotion Law that was extended to December 2019. Because of the new
bill passed, GLOB will be able to continue to have the tax benefits in
Argentina until 2029.
• On Nov 24, 2019 BBVA USA Bancshares Inc. invested $504,000
in GLOB making Hedge funds and other institutional investors 81.81% of the company’s
stock.
• The company has a debt-to-equity ratio of 0.15 (Comps
average: .75), a quick ratio of 1.65 (2.37), and a current ratio of 1.65 (2.38).
What has the stock done lately?
Over the past year, GLOB has been trading between $50.46-$112.33 and reached
its record high in July 29, 2019. Since reaching its high, GLOB slowly dropped
in price reaching $86.90. After reaching this low, GLOB had a steady increase
in price and with a strong third quarter results, the stock continues to have a
strong trajectory to reach new highs.
Source: FactSet
Past Year Performance:
Over the past year, GLOB has
outperformed the market significantly. While the SP 50-SPX(indexed to GLOB) has
grown 20.56%, GLOB has outperformed the market by over 70%, achieving a wealthy
94.42% growth. On November 14, 2019, GLOB delivered their third quarter
financial results with an EPS of $0.62 beating the estimated $0.59. The company
also announced their third quarter revenue of $171.3 million, up 27.3% year
over year.
Source: FactSet
My Takeaway
GLOB was pitched on March 22, 2019 and added to the international AIM
fund at a price of $70.57, with an initial price target of $86.28. Even though
GLOB has substantially passed the target price, I believe GLOB’s growth is not
stopping anytime soon and should be kept in the International AIM Fund.
