Baron Small Cap Fund: “E2open (ETWO) Will Be a Steady Earnings Compounder”

Baron Funds, an asset management firm, published its “Baron Small Cap Fund” first quarter 2021 investor letter – a copy of which can be downloaded here. A return of 2.67% was delivered by the fund’s institutional shares for the Q1 of 2021, trailing the S&P 500 Index, which appreciated 6.17%, and modestly underperforming the Russell 2000 Growth Index which rose 4.88% for the same period. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

Baron Small Cap Fund, in its Q1 2021 investor letter, mentioned E2open Parent Holdings, Inc. (NYSE: ETWO), and shared their insights on the company. E2open Parent Holdings, Inc. is an Austin, Texas-based software company that currently has a $1.9 billion market capitalization. Since the beginning of the year, ETWO delivered a -3.78% return, while its 3-month gains are up by 3.37%. As of May 14, 2021, the stock closed at $10.43 per share.

Here is what Baron Small Cap Fund has to say about E2open Parent Holdings, Inc. in its Q1 2021 investor letter:

E2open Inc. provides a 100% cloud-based software platform to orchestrate complex global supply chains. Its end-to-end SaaS solutions are mission critical. They drive compelling value and ROI for a diverse, blue-chip customer base (including Dell, Peloton, and Boeing) by helping them optimize their supply chains across channel shaping, demand sensing, business planning, logistics, global trade, and supply management.

The market for supply chain management is large ($45 billion-plus market) and has only increased in complexity and importance due to the COVID pandemic. E2open’s deeply embedded products enable strong retention (107% net retention) and long customer relationships (top 100 customers have a 14-year average tenure). Relative to the competition, E2open has devised an elegant and simple solution that is faster and nimbler compared to legacy ERP vendors, and its single interface for all participants compares favorably to the many point solutions out in the market.

E2open is poised to accelerate its organic revenue growth to about 10% in the upcoming fiscal year and maintain a low double-digit level over the medium term. Due to long-term contracts, the company has high visibility into future annual growth, and we expect acceleration will be driven by several factors, including expanding existing customer relationships ($1 billion white space alone), winning new customers, optimizing the sales force, getting better pricing realization, and enhancing strategic partnerships. Acquisitions are expected to be the primary use of free cash flow and should supplement the organic growth and provide meaningful synergies once integrated into E2open’s platform. The company has an attractive margin profile (low 30% increasing to high 30%’s adjusted EBITDA margins) paired with strong FCF generation. We believe that E2open will be a steady earnings compounder, which should drive solid returns for the stock over a multi-year period.”


Our calculations show that E2open Parent Holdings, Inc. (NYSE: ETWO) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. ETWO delivered a 5.14% return in the past month.

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Disclosure: None. This article is originally published at Insider Monkey.