Buy the Wolters Kluwer Crash? AMS: WKL
Summary
Sven focuses his analysis primarily on Wolters Kluwer, a growth software stock primarily operating in the US, despite being traded in Amsterdam. The stock has plummeted 64% over the last 14 months, mirroring the broader downturn in growth software companies. Despite this decline, Sven highlights several strong fundamentals: a good dividend yield, a P/E ratio of 10, consistent growth (6% organic, 9% EPS growth), and a 9% free cash flow yield. He emphasizes the company's entrenched, diversified businesses in health, tax, financial, corporate, legal, and regulatory sectors, noting their resilience to disruption, even from AI.
The business boasts 83% recurring revenues, high return on invested capital, and strong cash conversion. While acknowledging past share repurchases at higher prices, Sven notes their current effectiveness at lower valuations. A key concern raised is the potential impact of AI, which could lead to multiple compression, reduced purchasing potential, or increased competition, despite Wolters Kluwer's own AI implementation efforts.
Sven points out that the stock was previously overvalued, trading at a P/E of 30 for only 5% revenue growth, but has since adjusted to a P/E of 11. He believes the market often overshoots in both directions, suggesting the current low valuation might be an overcorrection. For investors, he warns against a 'wait and see' approach, arguing that by the time positive sentiment is widespread, it's often too late to capture significant gains. He posits that 'time is now' for those considering a position, advocating for accepting volatility and managing risks, even though he personally states he is still 'looking' for a clearer margin of safety before investing.
Sven also references broader investment strategies, including Michael Burry's recent actions, who bought Adobe and Veeva Systems (VEEV) but holds puts on Nvidia (NVDA) and Palantir (PLTR). He also mentions Druckenmiller's observation about MIT graduates gravitating towards AI, which could intensify competition and pressure pricing in some sectors. Sven recommends a portfolio of 10-15 asymmetric bets to achieve reasonable returns amidst market negativity, while also cautioning about the risk of correlation going to one during market crashes.
Mentioned Stocks
Reasoning: Sven notes that Michael Burry is hedged with puts and is rolling over Nvidia puts, indicating a bearish sentiment or hedging strategy against potential downside risk for the stock.
Reasoning: Sven mentions that Michael Burry is using puts on Palantir, similar to Nvidia, suggesting a bearish stance or a hedging strategy to protect against potential declines in the stock.
Reasoning: Sven mentions that Michael Burry recently bought Adobe, positioning it as an attractive investment amidst growth software stocks that have been significantly hammered, suggesting a contrarian play due to market overshooting.
Reasoning: Sven notes that Wolters Kluwer has seen its stock price drop by 64% in 14 months, making its current P/E ratio 10-11, a significant reduction from a P/E of 30 for just 5% revenue growth previously. He highlights strong fundamentals including 6% organic growth, 9% EPS growth, 9% free cash flow yield, 83% recurring revenues, high ROIC, and diversified, entrenched businesses resilient to AI. Despite potential AI competition and slow growth, Sven suggests 'time is now' for investors to consider a position, as the market might have overshot to the downside, but personally he is still 'looking' for a stronger margin of safety.
Reasoning: Sven states that Michael Burry recently bought Veeva Systems, along with Adobe, indicating it as an attractive investment within the basket of growth software stocks that have seen significant declines due to market overshooting.