Is Couchbase (BASE) A Smart Long-Term Buy?

Baron Funds, an asset management firm, published its “Baron Discovery Fund” third quarter 2021 investor letter – a copy of which can be downloaded here. A decline of 5.02% was delivered by the fund’s institutional shares for the third quarter of 2021, which was 0.63% better than the Russell 2000 Growth Index (the “Benchmark”). You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.

Baron Discovery Fund, in its Q3 2021 investor letter, mentioned Couchbase, Inc. (NASDAQ: BASE) and discussed its stance on the firm. Couchbase, Inc. is a Santa Clara, California-based software company with a $1.8 billion market capitalization. BASE delivered a 12.72% return for the past month and it closed at $42.25 per share on November 16, 2021.

Here is what Baron Funds has to say about Couchbase, Inc. in its Q3 2021 investor letter:

Couchbase, Inc., a new position in the Fund after a successful IPO, provides a modern database that collects and stores data and powers enterprise applications, for which there is no tolerance for disruption, inaccuracy, or downtime. The Couchbase database is based on a platform called NoSQL, which means that rather than having a pre-determined rigid structure to store data (like legacy relational database software), it stores data in documents, making it easy to have a flexible set of items that can move into and out of each record. Its solution is fast as it utilizes caching, or retrieval from memory, versus hard drives; scales to large numbers of records, which is expensive for old-style relational databases and not even possible with some of the other NoSQL solutions; and works in all settings (on-premise, in the cloud, or in mixed hybrid environments). Couchbase is addressing a large total market of $62 billion, which is slowly migrating to the cloud and using less rigid database structures. We believe Couchbase can win its fair share of these workloads over time given its unified platform, ability to scale run anywhere, and its familiar query language that makes it easier for developers to quickly create solutions. The company’s growth rate is currently being impacted by COVID (about 15% of Couchbase’s customers are in the travel and hospitality industries), but we believe a return to normal pre-COVID spending levels later this year and into early 2022 should help to accelerate growth. Longer term, we believe that management will improve its go-tomarket efficiency, which will further accelerate growth. Given that revenues are only about $150 million now, it has a huge opportunity in this $62 billion marketplace, and we expect that Couchbase will be a profitable investment for many years to come.”


Photo by Danial Igdery on Unsplash

Based on our calculations, Couchbase, Inc. (NASDAQ: BASE) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. Couchbase, Inc. (NASDAQ: BASE) delivered a 15.09% return in the past 3 months.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. Recently we came across a high-growth stock that has tons of hidden assets and is trading at an extremely cheap valuation. We go through lists like the 10 best growth stocks to buy to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage.

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