We came across a bull case theory on Cornerstone OnDemand (NASDAQ: CSOD) on ValueInvestorsClub by leob710. We find articles on VIC thoroughly researched by aspiring analysts, who tend to think out of the box. Click here for the full article. Here is the summary.
CSOD is global leader of cloud-based talent management software solutions. The company is a premier SaaS name in the pioneering solutions industry, and helps over 6000 customers globally navigate and manage the HR administration including recruitment, development and performance of employees to realized their full potential.
CSOD has loyal customer base and ascendable technology. The company’s migration of HR software to the cloud over the past decade has helped it achieve the best software in the industry. Acquisition of one of its major competitors, Saba, was done with multiple objectives. These included monetization of synergies, greater market share, growth in cash flow, complementary talent, vision alliance among others.
Saba’s CEO, Phil Saunders, is the CEO of the combined company. He has a reputation of building strong management teams, and maintains a historical track record in both M&A integration and company operations. Saunders excels in making tough decisions like cost-cutting including managing headcount. Additionally, the industry also has clocked a decade-long growth, seeing slew of acquisitions of SaaS companies.
Despite broad tailwinds, CSOD stock has had mediocre performance over the past few years.
Why Did CSOD Underperform?
Primary factors behind the stock’s underperformance include previous management team’s poor performance, little regard to shareholder value, a perceivably overvalued acquisition of Saba, and Covid impact. Interestingly, these very negatives creating investors’ snub have now pushed CSOD into the attractive territory, selling at one of the lowest multiples in the midcap SaaS space.
Now, with the new management’s determination to restructure should help CSOD recapture hitherto disappointed value investors’ attention. Though the pandemic has slowed down near-term demand, growing need to work and train from home should improve EBITDA and free cash flow. The human capital management (“HCM”) technology is a primary segment in the software space and this should help CSOD in the long term. CSOD’s renewed focus on sales and marketing should help it achieve the Rule of 40 (growth rate + profit = 40%), and a low double-digit revenue growth. With optimization of resources, negligible competition, a visionary management team and industry tailwinds, CSOD is well-positioned to become a very attractive takeover target by IT giants and PE firms.
