Smart Money Alert: Insiders and a Super Investor Are Buying This Stock - The 5 Minute WrapUp by Equitymaster
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Smart Money Alert: Insiders and a Super Investor Are Buying This Stock

Dec 19, 2018

Sarvajeet Bodas, Research analyst, The 5 Minute Wrapup

I'll publish my latest Smart Money Secrets recommendation with an element of good timing.

Just look at what happened to this stock...

  • Third Week of October: The company announced its second-quarter results. The performance was not up to the mark. The revenue had declined marginally but the market over reacted and the stock plunged more than 15% the next day.
  • Fourth Week of October: After the correction, company insiders, as well as a super investor, I closely track, started buying. This super investor increased stake from 0.88% to 1.29% in the company.
  • November: I observed a similar pattern in November. The super investor increased stake further from 1.29% to 1.33%.

When insiders buy their own stock, it shows their confidence about the business prospects. The same is true for the super investors I track.

I believe it's one of the strongest smart money indicators.

But this is just the starting point.

Ultimately, the company must pass the Smart Money Score.

And boy, this month's recommendation passed with flying colours!

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But what's so special about this company?

Let me tell you the most important thing...

This is a mid-sized company but It operates like a start-up!

How is this possible?

Well, its employees think and work like those at a startup. In other words, the company has the DNA to thrive in the digital world.

It has partnerships with tech giants such as Amazon, Google, Microsoft, Salesforce, IBM and more.

This not only provides a larger market but also skill-sets, new capabilities, and access to the partner's clients.

By following this approach, the company created a strong niche for itself in a very competitive market.

While studying this company's business, I found something interesting...

'Heads I win; tails I don't lose much.'

The company takes small bets in its business in such a way, that if it wins, it wins big...and if it loses, it doesn't lose much.

Such small bets have a limited downside but a huge upside. This is not an easy thing to do successfully but this company has done it very well over many years.

But does it make profits?

No doubt, the company has characteristics of a start-up. But when it comes to financials... its numbers are like any mature Indian IT company.

The cash flows are strong. The debt is minimal. The return ratios are high, above 20%. The dividend payout has increased steadily from less than 9% to about 25% in 9 years.

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So what is the secret to its success?

The management.

Transparency, ethical conduct, long-term vision, competence, and foresight. These qualities come to mind at once when you think about the management. Not to mention, impressive capital allocation skills.

The company endured the dotcom bust in 2000 and the recession in 2008. Each time, it came out much stronger than before.

Now, this stock was on my radar for quite some time. But I couldn't recommend it because the valuations were too high.

But now, with valuations looking reasonable, I will publish the Smart Money Secrets recommendation for December...this Friday.

I know it's a bit sooner than our usual monthly publication date but I'm super excited about this stock and I don't want subscribers to wait.

If you haven't signed up for Smart Money Secrets, you can do so here...

Chart of the Day

This company may have a start-up flavour about it but its numbers are like any mature IT company.

Look at this chart...

An Impressive Performance Since Listing in 2010

Just look at the strong financial performance since it listed in 2010.

A strong niche presence and the capabilities of the management, are the reasons for the robust growth.

This company has increased its dividend payout from 6% at the time of IPO to 25% in FY18.

Here's another interesting fact...

The company has more than Rs 13 billion cash on its balance sheet. That's around 28% of the market cap!

What's more, the stock has corrected by more than 30% from its 52-week high. But its fundamentals remain as strong as ever.

I will publish the recommendation report this Friday.

Stay tuned.

If you haven't signed up for Smart Money Secrets, you can do so here...

Regards,
Sarvajeet Bodas
Sarvajeet Bodas
Research Analyst, Smart Money Secrets

PS: Now you can track India's super investors and receive their top stock recommendations. Smart Money Secrets is a premium stock recommendation service based on following the smart money, the very best investors in India. Get access to this exclusive stock recommendation service here.

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1 Responses to "Smart Money Alert: Insiders and a Super Investor Are Buying This Stock"

Philip

Dec 20, 2018

My guess is that its Sonata software? Lets wait for the recommendation to come.

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