Deloitte - Technology Fast 500 Rankings for 2014
It seemed easy enough. Rocket Ride Stocks (RRS) would just get the list of Deloitte Fast 500 Rankings for
2014, and then select the Top 25 fastest growing companies for possible investment. It was not quiet
that easy but here is the Deloitte list:
It did not take long to see that most of the top 25 companies on the Deloitte list were private companies
and mainly software related companies at that. But there were six (6) companies that were listed on
major stock exchanges. We decided to take a closer look at these six fast-growing companies which we
identify as “The Listed Six’.
FEYE – FireEye, Inc. provides products and services for detecting, preventing, and resolving advanced
cyber security threats. Its products comprise a threat prevention system that provides threat protection
from network to endpoint for inbound and outbound traffic.
FUEL - Rocket Fuel Inc., a technology company, provides artificial-intelligence digital advertising
solutions. The company offers artificial intelligence-driven solutions that is built on its real-time
optimization engine, which leverages Big Data for function optimization.
MEET - MeetMe, Inc., a social media technology company, owns and operates social discovery
networking products in the United States. The company enables meeting new people on the Web and
on mobile platforms, including on iPhone, Android, and iPad,
MOBL - MobileIron, Inc. develops and provides an information technology platform for enterprises to
secure and manage mobile applications, content, and devices.
SSNI - Silver Spring Networks, Inc. provides networking platform and solutions that enable utilities to
transform the power grid infrastructure into the smart grid.
ZLTQ - ZELTIQ Aesthetics, Inc., a medical technology company, is engaged in developing and
commercializing non-invasive products for the selective reduction of fat. It offers CoolSculpting system,
which utilizes proprietary controlled-cooling technology to selectively reduce stubborn fat bulges.
In line with the pattern established by the top 25 companies in the list, half of the exchange listed firms
were software firms. We have no problem with that - so it seemed like a good idea to take a look at the
tremendous growth attributed to these companies. To do that, we assembled the data in Table I.
Table I. The Listed Six
Reviewing Table I, several observations jumped off the page. These cursory observations are as follows:
1. All of the stocks listed are trading near the low end of their 52 week range except for ZLTQ.
2. Price to Sales values are nominal except for FEYE. FEYE P/S is seemingly high.
3. FEYE is the highest price stock shown and has the highest earnings loss. Yet there is a very
large average volume. Since that is counter- intuitive, there must be a significant driver for
the level of investor interest this indicates.
4. All of the stocks listed have negative earnings. Only one, MEET, had a positive EBITDA.
Obviously, the six companies are in the development stage of their growth cycle and would,
thus, seem to offer very positive upside potential.
Since the average volume indicates that these companies are well traded, it is worth an attempt to
assess value.
With no stocks having positive earnings, we can use price-to-sales (P/S) instead of the price-earnings
ratio (P/E Ratio, or PE) to determine how much we are paying for a dollar of the company's sales, rather
than a dollar of its earnings. P/S is sometimes used in checking whether a company's growth has
become overvalued. It comes in handy in cases like “The Listed Six” where a company has suffered
losses and, as a result, has no earnings (and therefore no PE) with which we can assess the share’s value.
The price-to-sales ratio (Price/Sales or P/S) is computed by taking the company's market capitalization
(the number of shares multiplied by the share price) and dividing it by the company's total sales over the
past 12 months. The lower the ratio, the more attractive the investment.
But we also need to be mindful of the P/S ratio's potential pitfalls and possible unreliability.
Let's consider how we evaluate a firm that has not made any money in the past year. Unless the firm is
going out of business, the P/S will show whether the firm's shares are valued at a discount against
others in its sector. Say the company has a P/S of 1.0 while its peers have higher ratios of, say, 3. If the
company can turn things around, its shares will enjoy substantial upside as the P/S becomes more
closely matched with those of its peers. All things being equal, a low P/S is good news for investors,
while a very high P/S can be a warning sign.
Debt Is a Critical Factor. A firm with no debt and a low P/S metric is a more attractive investment than a
firm with high debt and the same P/S. At some point, the debt will need to be paid off, so there is always
the possibility that the company will issue additional equity. These new shares expand market
capitalization and drive up the P/S.
This leaves us with three immediate tasks;
1. Determine each of the Listed Six companies debt situation,
2. Determine prospects for future growth of the Listed Six.
3. Examine the recent price trajectory of each stock.
A. Debt Assessment
An assessment of the debt was made for each company by comparing the company’s total debt to its
market valuation. None of the companies are carrying a significant debt load.
On the surface, the fact that none of the Listed Six have significant debt would mean that the P/S ration
may be a useful comparative metric for companies in the same sector.
B. Growth Potential
Next, we used analyst earnings estimates to determine the future projected growth of the companies.
FEYE and FUEL are projected to have high long term growth with MEET projected to demonstrate an
approach to profitability and significant price gain over the next year. Analysts have not yet convinced
themselves on the long term growth of MEET, MOBL and SSNI but that could be coming. ZLQT is shown
with modest growth over the next year but significant continuing growth thereafter.
C. Recent Stock Price Trajectory
In order to observe the recent price history of the Listed Six stocks, a RRS trajectory analysis was
performed and is shown below.
The analysis shows the following recent investor interest in terms of increasing stock price over the last
month.
FEYE – A very significant amount of continuing interest is shown with a nearly two dollar stock price
increase over the last two weeks. (GREEN)
FUEL – Really good recent price increase demonstrating current investor interest. (GREEN)
MEET – No recent pricing increases indicated that the stock is currently stalemated. (RED)
MOBL – Only minor recent investor interest is demonstrated. (RED)
SSNI – Stock is currently out of favor with investors. (RED)
ZLTQ – Strong investor interest demonstrated over the last month of trading. (GREEN)
D. Summary and Conclusions
It is always interesting when different people look at the same data and derive different conclusions. I
have decided which stocks I will spend time tracking for potential accumulation in the near future. And, I
will explain the reasons for my choice. Please feel free to draw your own conclusions.
I have selected FEYE and FUEL for further Rocket Ride Stocks tracking and possible purchase. My
reasoning is summarized as follows recognizing that all of the stocks have made great accomplishments
in the past year in order to be listed in the Deloitte Fast 500 Top 25 list:
1. MEET, MOBL and SSNI are not currently showing investor interest. Further analyses are
required to understand why. This is a situation that could change at any time and I will be
mindful of that possibility. For now, I have no continuing interest.
2. ZLTQ is not in a sector that Rocket Ride Stocks has identified as the “Next Big Thing”. However,
one cannot deny the validity of the argument that a company devoted to reducing human body
fat is addressing “the next big thing”.
3. That leaves FEYE and FUEL. Both companies address markets recognized by RRS as the next big
thing. Both are in the software sector of technical stocks and with little or no debt and excellent
analyst projections for future growth but with no positive earnings to date. This means that the
P/S can be used to compare the two stocks on a value basis. In that case FUEL is the clear
winner with a P/S seven (7) times less than that of FEYE. FUEL has been selected.
4. But wait….there is breaking news. The target price for FEYE has just been raised significantly.
Please read the following Bank of America release:
Bank Of America Sees Multiple Positive Factors Ahead For FireEye
In a report published Friday, Bank of America analyst Tal Liani reiterated a Buy rating and
$44.00 price target on FireEye Inc (NASDAQ: FEYE).
In the report, Bank of America noted, “We met management at a quasi-analyst day held in New
York. We believe management delivered a strong message on growing demand for advanced
malware protection solutions driven by the worsening threat landscape. Companies are
increasing security budgets and re-thinking their security architectures. Per management,
current spend on APT products is just scratching the surface as the increasing cost of large scale
breaches drives demand in geographic areas and in verticals that typically under spend on
advanced technology. We are bullish on FireEye for the following reasons: 1) we believe
expectations are low following three consecutive quarterly earnings hiccups 2) market
leadership in one of the fastest growth segments in tech, and 3) superior technology and an
achievable level of street estimates for 2015. We reiterate our Buy rating and $44 PT.”
Finally, we have selected both FEYE (Fire Eye) and FUEL (Rocket Fuel) for further Rocket
Ride Stock assessment. They are of significant interest to us. And with names like Fire Eye and
Rocket Fuel, how could they not be.