Wednesday, December 4, 2019

A Current AIM International Equity Holding: Globant SA (GLOB, $102.07): “Huge Growth With Globant’s Disruptive Technologies”

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.


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.