PE Ratios Under Pressure via /r/wallstreetbets #stocks #wallstreetbets #investing


PE Ratios Under Pressure

WDAY/APPF

As tech sector funds started their downtrend in Q42021, a few stragglers didn’t quite make it to the chopping block yet – WDAY and APPF. These two have my attention, as well as $21k of options. Monday these two PE Heavyweights head to the main stage for their earnings release and pullbacks are highly probable.

Market Data Snapshot as of 02/18/2022

Symbol PE Ratio Annual Revenue Annual Net Income
WDAY 2383 $4.3B (2021) $-282.43M (2021)
APPF 2027.11 $310.06M (2020) $158.4M (2020)
CRM 108.75 $21.25B (2021) $4.07 B (2021)

Poor Outlook * High PE = $_$ $_$ $_$

CRM shocked quite a few of us the way it pulled back with lowered guidance for the future. This trend continued to boom as other tickers bled out on poor future guidance – and WDAY/APPF will go the same. Need proof? Look at WDAY’s performance YoY. These figures were before higher inflation – imagine what this will look like at the end of 2022?

Workday YoY Net Income

APPF brings a similar set of red flags. The company historically fails to meet expectations with surprises ranging from -20% to -93% QoQ. You've probably seen this same picture looking for "APPF Earnings"

APPF Earnings QoQ

APPF QoQ Net Income

This year is expected to be $355m-$357m in revenues. By the numbers, their quarter revs must break $91m to barely meet estimates. Revs aside, the bigger concerning piece is the company’s bottom line YoY and QoQ. Totaling up net income in 2021 YTD puts us at:
03/2021 - 479k
06/2021 - 2,002k
09/2021 - 141k
-----
Total: $2,340k ($2.34m)

APPF YoY Income: 2016-2020

Even if the company doubled its previous best for the year and posted $4m — the company will be at its lowest profitable year since 2016 ( -8.28M). With inflation in their face, these numbers will only go lower.

Note: In Q32020 the company sold the subsidiary MyCase for $193m Cash hence the net income of $158.4M for 2020.

Both of these tickers will undoubtedly see higher operating costs during this time of inflation leading to a more challenging outlook in 2022. Finally, the sector has seen increased competition from names such as Yardi and Buildium. Both offering an attractive price point and user experience.

To recap, the following factors contribute to why we may see a sharper pullback than expected:

  • High PEs 2000+ compared to industry peers
  • Inflation w/ potential higher fed rate hike
  • Potential Guidance Miss or Lowered Future Guidance ( probable )
  • Continued War Tensions ( I hope not, but also probable )

Overall, I think WDAY/APPF present themselves as probable stocks that will drop this Monday. Possibly even pre-ER as this weekend holds us in suspense. GLTA :beers:

Final disclaimer: Not investment advice, do your own DD (challenge these points!), trade responsibly ( Shift happens! )

My Positions/Holdings:

Adding more today on the SPY Bounce — positions may double. Total Cost Basis: $21k and some change.

WDAY Positions

APPF Positions

References:

  • http://ir.appfolioinc.com/investor-relations/news-and-events/news-releases/press-release-details/2020/AppFolio-Inc.-Announces-Third-Quarter-2020-Financial-Results
  • https://www.marketwatch.com/investing/stock/appf/financials?mod=mw_quote_tab
    https://www.apax.com/news-views/appfolio-announces-sale-of-mycase-to-funds-advised-by-apax-partners/
  • https://www.marketwatch.com/investing/stock/appf/financials/income
  • https://apnews.com/article/russia-ukraine-business-europe-prices-inflation-e44ad9b2088aa352015868a4f6b17785

Submitted February 25, 2022 at 07:37PM by _notation
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