Why Slack Technologies (WORK) Stock is a Compelling Investment Case

Tao Value recently released its Q3 2020 Investor Letter, a copy of which you can download here. The fund posted a return of 7.08% for the quarter, underperforming its benchmark, the MSCI All Country World Index (ACWI) which returned 8.41% in the same quarter. You should check out Tao Value’s top 5 stock picks for investors to buy right now, which could be the biggest winners of this year.

In the said letter, Tao Value highlighted a few stocks and Slack Technologies Inc. (NYSE:WORK) is one of them. Slack Technologies Inc. (NYSE:WORK) is a software company. Year-to-date, Slack Technologies Inc. (NYSE:WORK) stock gained 18.2% and on October 27th it had a closing price of $27.93. Here is what Tao Value said:

“We initiated a new position in Slack, who recently is under pressure from Microsoft Teams’ fierce competition. I have been tracking Slack since its private days and I think now is a good opportunity to buy. My thesis are: 1) Slack is a fundamentally unique tool creating substantially more value for users (albeit under-monetized) than competitors; & 2) founder/CEO Stewart Butterfield is a mindful leader with proven track record of innovation and pivoting business.

To understand what Slack really is, we need to go back to its birth. When Butterfield and his early partners were busy with their second unsuccessful stint in building a MMO (massively multiplayer) game named Glitch, they were not satisfied with how they collaborate at work using existing tools. Thus, they decide to build an internal tool to get jobs better done with integration of all you need for work, which ultimately became Slack. Microsoft Teams did a decent job in copying it, but it cannot kill Slack. Through channel checks, I found not a single Teams user enthusiastic about it (many use it as a rebranded “Lync”, or IM & conference call only, not even workflow integration), while most of Slack users are. I think the users of these two are fundamentally different based on engagements, thus should be valued differently.

Furthermore, I also believe Slack has potential to innovate and pivot, further creating value for stakeholders. Slack is not Butterfield’s first major business pivot. Interestingly, during his first unsuccessful MMO game stint, one in-game feature later evolved into the popular photo-sharing website Flickr, which eventually bought by Yahoo!. Building a product on the side later becoming a hit is no easy task, let alone having done it twice. It requires deep thinking about “how to build things right” and extraordinary rationality (think about how you, as a leader, would justify the additional resources while your main product already consumes your team entirely). I believe the new inter-corporation tool Slack Connect is a promising direction, and I expect more of such innovations.”

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Earlier this month, we published an article revealing that Slack Technologies Inc. (NYSE:WORK) stock has underperformed the S&P 500 Index in the trailing one year period.

In Q2 2020, the number of bullish hedge fund positions on Slack Technologies Inc. (NYSE:WORK) stock increased by about 3% from the previous quarter (see the chart here), so a number of other hedge fund managers believe in Slack’s growth potential. Our calculations showed that Slack Technologies Inc. (NYSE:WORK) isn’t ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 enewsletter below to receive our stories in your inbox:

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