Stock of the Week: This No. 1 Rated Online Marketplace Is Soaring
Alpesh Patel|February 24, 2023
The job market is tight. Hiring is competitive… salaries are rising… and employers are under pressure to recruit smartly.
That’s where this week’s Stock of the Week comes in.
This No. 1 rated online marketplace connects job seekers and employers…
And is in a solid position for growth in a tight job market.
Plus, its CROCI – cash return on capital invested – is huge. That’s my No. 1 indicator for predicting strong returns.
Get all the details on the stock – including the ticker – in my latest video.
Click on the image below to watch it.
Welcome, friends. And welcome to my home. Please excuse the casual attire. I’m Alpesh Patel, as you know. I run an asset management company, which has a hedge fund division and also a private equity division. And in these Stock of the Week videos, I share with you some of the insights that my team garner as they go through a variety of stocks each week to show me which ones I should discuss with you.
This week, I’ve picked another one which I think will do rather well and is fascinating but also will give you an insight into the hedge fund process, how we think about where the markets are going – and the world as a whole.
It’s to give you that insight which you can’t get from elsewhere.
Let’s get right to it.
The Stock of the Week this week is ZipRecruiter (ZIP). Together with its subsidiaries, it operates a marketplace that connects job seekers and employers.
We’ve got a tight global marketplace, particularly in the U.S. The marketplace is tight, salaries are rising, and that’s putting pressure on employers to recruit smartly. And it’s competitive.
But also, it means that if a company like this is able to source from a wider range of employees, then there’s not only an opportunity for existing employees to move on but also for employers to find new recruits. It’s just that kind of a tight marketplace, which plays well.
And in a high-inflation environment, one of the advantages you have is that, of course, the nominal fees that a company like this can earn should increase.
It also means that when you get some of the big, high-salary layoffs – such as from some of the tech giants – then they’re likely to get rehired in a tight-led market pretty quickly and at a relatively high salary.
Again, that means fees for companies like this should be fairly strong. They should be in a good position.
The company’s platform provides a two-sided marketplace. It enables employers to post jobs and access other features, and job seekers are able to apply for jobs relatively easily.
The company’s listed on the New York Stock Exchange. It’s been rated the No. 1 job search app on iOS and Android for the past five years and is rated the No. 1 employment job site by G2.
The market cap is $2.6 billion, so we’re not talking about a small company by any means. It’s got a lot of strong growth numbers.
Let’s look at some of those.
Before we do, let’s just look at my proprietary indicator, my Growth-Value-Income rating. ZipRecruiter has a rating of 7.
Now, remember, this is my algorithm which weighs the valuation of a company, the revenue growth of a company, the cash flow generation, the dividend yields, all these factors. It weighs each one of those factors, and then gives a score out of 10.
It allows us to scan 10,000 companies relatively quickly and narrow those which we might be interested in by their score: 7, 8, 9, or 10 means that they meet our minimum requirements, and this company definitely does that.
CROCI, or cash return on capital invested, is a formula invented by Deutsche Bank Wealth Management and used by Goldman Sachs Wealth Management. If you want to know why it’s so important and why it signifies potentially strong growth in the future, then have a look at the link below this video.
Now, the company’s been performing well recently.
For valuation, the forecast P/E ratio is a multiple of 22. That’s not too expensive. It’s a little bit pricey, but it’s not too bad in this market.
Turnover is forecast to grow. Profits per share, or earnings per share, are forecast to grow significantly as well.
You’re not buying this company for dividends. However, as I said, that cash return on capital invested figure is very important. It’s solid.
Turnover’s been increasing recently. Borrowing’s been coming down. Total assets have been increasing. All numbers that I like to see.
In particular, what I like is that the share price, having pretty much bottomed out in July 2022, has started to move forward.
What else do we have?
It’s undervalued, which is good. Fair value. Look at that discounted cash flow basis. The fair value should actually be $31.
We’ve got some pretty good numbers in terms of growth, pretty good numbers in terms of the company, and a good, solid economic background against which it sets itself.
Hope you like that. Hope you saw the “tip of the iceberg” of how we look at these things and found it educational and informative.
Thank you all very much.