- Two out of three stocks we dive into from our earnings upgrade screen look very interesting
- The other company we look at, is a case study for assessing growth by acquisition
Growth comes in many different forms: market-led, incremental expansion or step-change to name a few. This week, we look at an example of each of these and try to assess what is best for a business and for investors. Growth from whatever source needs to be transparent, well-grounded and trusted by shareholders. Our stocks this week also raise the question of whether markets need to forgive and forget past mistakes or problems - historic erring can create good buying opportunities if current strengths are being hobbled by past weaknesses.
- Indivior (INDV) – the opioid crisis or epidemic (mainly found in the US) is a major and growing healthcare issue with seemingly few successful solutions. Indivior is a pharmaceutical company selling drugs that enable those addicted to prescription painkillers to safely quit and end their dependency. Demand for such medication is growing fast and EPS are forecast to triple from 2020 to 2022, yet the shares trade on barely a market average PE. The share price does have a checkered history and all pharma stocks are on permanent watch for cautious news flow, but the caution and consequent discount here look overdone.
- Marlowe (MRL) – Marlowe is a highly acquisitive operator in the testing and compliance space within the support service sector, consolidating highly fragmented end markets via a long chain of small bolt-ons. It even dallied with a step-change purchase of a near equal this year, but that fell through. The board has ambitious targets that the consensus does not reflect, so it is hard to tell whether the shares are cheap or fully valued. Those ambitious growth targets need to begin to prove themselves if positive share momentum is to resume.
- Kape Technologies (KAPE) – Kape has made two large acquisitions this year, one strategic and the other transformative. A more than doubled footprint in the VPN (internet access security) sector via the purchase of ExpressVPN in September looks capable of boosting EPS in 2022 by close to 30 per cent, but the shares have only run up a little more than 15 per cent. The shares already hit a low, but have de-rated further since the last acquisition. Does Kape still sit under the negative shadow of its former self, Crossrider? It shouldn’t and the low rating relative to the technology and cybersecurity sectors is unwarranted.
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