May 19, 2020

How to spot a dubious investment when stocks are over-performing

Wall Street Journal
Tomás H. Lucero
3 min
How to spot a dubious investment when stocks are over-performing

Lowe’s and Home Depot investors are happy campers right now.

Both home-improvement stocks have been dynamite. Over the past year, Lowe’s has risen by 61 percent and Home Depot’s by 48 percent. To an investor looking for his next opportunity, Lowe’s appears to be, hands-down, the best company to buy into at the moment. A closer look, however, tells a more complex story that may provoke an investor to think twice before buying into a stock based solely on its recent upturns.

For example, even though Lowe’s stock rose by 13 percentage points more than Home Depot’s, according to the Wall Street Journal, the latter store produced better results in number of sales and rate of revenue growth. This means that, as long as Home Depot continues to do better in these indexes, in the long run, Home Depot may not be as inferior a competitor as some numbers may show.  

A look at both companies’ compound annual revenue growth (CARG) also takes some gloss away from Lowe’s stock price promise. Over the last five years the CARG for Lowe’s is 3.8 percent and for Home Depot it’s 4.7 percent. And glaringly, Lowe’s operating margin is 8.6 percent, compared to its rival’s 12.6 percent. Operating margin is an important indicator about how well a company is running its business in day-to-day operations.  By comparing gross margin, an important factor in operating margin, allows insight into the expenses of returns of merchandise and discounts that marketing has given its customer base to drive sales. It also shows how well an organization is absorbing depreciation and managing its tax obligations. The numbers show that Home Depot is outperforming Lowe’s in these nuts and bolts of business.

Another important factor in weighing these two stocks is that, as the Wall Street Journal points out, “The problem is that a strong economic backdrop already is factored into the share prices of both companies.” While this factorization is needed, it also lends the value of the stock a dash of capriciousness. If the “strong economic backdrop” continues—in this case, in housing—then the stock will continue its gallop. If the prediction is wrong, the stock may trip.  

This is not an endorsement of Home Depot stock. Both companies are doing well in some important ways. This is not reason enough to run out and buy into them, or any company, that looks great on the surface.

*This article is not intended as financial advice or brand endorsement. Please consult a professional when making investment decisions.

Related Story: Home Depot’s Frank Blake Steps Down, New CEO Appointed

Related Story: The benefits that big data and analytics afford retailers}

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May 3, 2021

Dell to sell cloud-based iPaaS Boomi in US$4bn deal

Kate Birch
3 min
Francisco Partners and TPG Capital agree to acquire Boomi – provider of cloud-based integration platform as a service – from Dell Technologies for US$4bn
Francisco Partners and TPG Capital agree to acquire Boomi – provider of cloud-based integration platform as a service – from Dell Technologies for U...

Global investment firm Francisco Partners and private equity platform TPG Capital have entered into an agreement with Dell Technologies to acquire cloud-based integration platform as a service provider Boomi in a cash deal valued at US$4bn. The deal is expected to complete this year.

“Boomi has flourished as part of Dell Technologies, growing exponentially since we acquired them in 2010. This proposed transaction positions Boomi for its next phase of growth and is the right move for both companies, our shared customers and partners,” said Jeff Clarke, vice chairman and chief operating officer of Dell Technologies.

“For us, we're focused on fuelling growth by continuing to modernise our core infrastructure and PC businesses and expanding in high-priority areas including hybrid and private cloud, edge, telecom and APEX. All designed to help organisations thrive in the do-from-anywhere economy.”

Dell’s Boomi sell-off follows VMware spin-off

This announcement comes just two weeks after Dell said it would spin-off its 81% equity ownership of VMware to form two standalone companies. This would result in an expected US$9.3bn cash dividend payment to Dell, which says it will use those funds to pay down debt.

When Dell acquired Boomi in 2010 for an undisclosed fee, Boomi offered the industry’s only pure SaaS application integration platform, powered by its revolutionary AtomSphere technology. Dell saw Boomi as addressing one of the top barriers to cloud adoption at that time, which was managing and integrating cloud-based applications with existing applications and databases.

Now, Boomi has more than 15,000 customers globally and is still seen as a leader when it comes to organisations connecting applications, processes and people across a range of locations and devices – a process that can take weeks rather than months.

“I am incredibly proud that through innovation, passion and relentless execution, the Boomi team has created a unified platform for the modern-day hybrid IT landscape that thousands of customers worldwide depend on to digitally transform their business,” said Chris McNabb, chief executive officer of Boomi.

“By partnering with two tier-one investment firms like Francisco Partners and TPG, we can accelerate our ability for our customers to use data to drive competitive advantage. In this next phase of growth, Boomi will be in a position of strength to further advance our innovation and market trajectory while delivering even more value to our customers.”

Francisco Partners has invested in more than 300 technology companies since its launch 20 years ago and has more than US$25bn in assets under management.

“The ability to integrate and connect data and workflows across any combination of applications or domains is a critical business capability, and we strongly believe that Boomi is well positioned to help companies of all sizes turn data into their most valuable asset,” said Dipanjan Deb, co-founder and chief executive officer, and Brian Decker, partner, at Francisco Partners

Nehal Raj, partner, and Art Heidrich, principal, at TPG Capital added: “The need for automation and data integration across applications has never been greater. Boomi's cloud-native platform enables enterprises to streamline business processes and is essential for driving digital transformation.”

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