Finance

Chase Coleman Reinforces RingCentral Bet

Summary

  • The company is creating workforce solutions to accommodate remote employees.

Chase Coleman (TradesPortfolio), founder of Tiger Global Management and one of Julian Robertson (TradesPortfolio)’s former “tiger cubs,” disclosed earlier this week he upped his stake in RingCentral Inc.
RNG
(RNGFinancial) by 23.98%.

Established in 2001, the guru’s New York-based hedge fund is known for focusing on small-cap stocks and technology startups, having been an early investor in companies like Facebook Inc
FB
. (FBFinancial) and Spotify Technology SA (SPOTFinancial).

According to GuruFocus Real-Time Picks, a Premium feature, Coleman invested 945,000 shares of the Belmont, California-based software company on Oct. 14, impacting the equity portfolio by 0.41%. The stock traded for an average price $236.96 per share on the day of the transaction.

He now holds a total of 4.8 million shares, accounting for 2.14% of the equity portfolio. GuruFocus estimates Coleman has gained 50.39% on the investment since establishing it in the first quarter of 2019.

The company, which provides enterprise cloud communications, video meetings, collaboration and contact center solutions, has a $21.92 billion market cap; its shares were trading around $238.39 on Friday with a forward price-earnings ratio of 141.44, a price-book ratio of 237.64 and a price-sales ratio of 15.78.

The GF Value Line
VALU
suggests the stock is modestly undervalued currently based on its historical ratios, past performance and future earnings projections.

In August, RingCentral reported its second-quarter results, posting adjusted earnings of 32 cents per share on $379 million in revenue, which was an improvement from the prior-year quarter.

More recently, the company introduced RingCentral Rise, a platform that counts service providers like AT&T Business (TFinancial), Ecotel (XTER:E4CFinancial), MCM and TELUS (TSX:TFinancial) among its users. RingCentral noted the service allows its customers to offer their own unified cloud communications solutions, including team messaging, video meetings, cloud phone system and contact center solutions, to businesses in a fast, flexible and scalable manner.

Earlier this month, it also revealed new innovations to help organizations integrate and connect their own business platforms in order to accomodate hybrid work since many employees continue to work remotely.

GuruFocus rated RingCentral’s financial strength 3 out of 10. Despite having debt-related ratios that are underperforming versus competitors, the Altman Z-Score of 7.3 indicates the company is in good standing. Assets are building up at a faster rate than revenue is growing, however, indicating that it may be becoming less efficient.

The company’s profitability fared even worse, scoring a 2 out of 10 rating on the back of declining margins and negative returns on equity, assets and capital that underperform a majority of industry peers. RingCentral also has a moderate Piotroski F-Score of 4, meaning conditions are typical for a stable company, as well as a predictability rank of one out of five stars. According to GuruFocus, companies with this rank return an average of 1.1% annually over a 10-year period.

With a 5.34% stake, Coleman is RingCentral’s largest guru shareholder. Ron Baron (TradesPortfolio), Pioneer Investments, PRIMECAP Management (TradesPortfolio), Steven Cohen (TradesPortfolio), Paul Tudor Jones (TradesPortfolio), Chuck Royce (TradesPortfolio) and Baillie Gifford (TradesPortfolio) also own the stock.

Portfolio composition

Over half of Coleman’s $53.76 billion equity portfolio, which was composed of 142 stocks as of June 30, is invested in the technology and consumer cyclical sectors.

Other software companies the guru was invested in as of the end of the second quarter included Microsoft Corp
MSFT
. (MSFTFinancial), DocuSign Inc. (DOCUFinancial), CrowdStrike Holdings Inc
CRWD
. (CRWDFinancial), Zoom Video Communications Inc. (ZMFinancial), Shopify Inc.
SHOP
(SHOPFinancial) and ServiceNow Inc
NOW
. (NOWFinancial).

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Disclosures

I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.


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