Part 2: Deep dive on VTEX ($VTEX) plus new links to spreadsheets, investment models and daily webcasts
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Company: VTEX
Ticker: (VTEX)
Website: https://vtex.com/us-en/
IPO date: July 21, 2021
IPO price: $19.00
Current stock price: $6.88
Outstanding shares: 187.82 million
52 week high: $7.15 on November 20, 2023
52 week low: $3.18 on December 22, 2022
ATH: $33.36 on August 10, 2021
Market cap: $1.292 billion
Net cash/debt: $209 million
Enterprise value: $1.083 billion
Headquarters: London, United Kingdom
Number of employees: 1,270+
Average price target from analysts: $7.86 (only a few analysts cover VTEX)
Investor Relations:
https://www.investors.vtex.com/
Q3 2023 Earnings Report: https://s28.q4cdn.com/761427389/files/doc_financials/2023/q3/_VTEX-3Q23-Earnings-Press-Release-pptx.pdf
Business Overview (November 2023): https://s28.q4cdn.com/761427389/files/doc_financials/2023/q3/VTEX-3Q23-Earnings-Presentation.pdf
Investor Day (July 2023): https://s28.q4cdn.com/761427389/files/doc_presentations/07/VTEX-Investor-Day-2023.pdf
Outline
Introduction [part 1]
Company Background [part 1]
Opportunity [part 1]
Business Model [part 1]
Competitive Advantages [part 1]
Risks [part 1]
Valuation [part 2]
Investment Model [part 2]
Analysts [part 2]
Technicals [part 2]
Conclusion [part 2]
Additional Sources [part 1]
In case you missed part 1 of the VTEX deep dive…
Part 1: Deep dive on VTEX ($VTEX)
PLEASE READ THIS:
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HERE ARE THE IMPORTANT LINKS:
Jonah’s investment portfolio for January 2024: https://docs.google.com/spreadsheets/d/1OBDmStVJW5REHBWYr6FJKTxURs36QAruCW1L1hD4q34/edit#gid=0
Jonah’s investment models for January 2024: https://docs.google.com/spreadsheets/d/1P4iJv5F_nRfrzYKAohkbr4XYj5_eh4TXztk9a1vPW-c/edit#gid=527845503
Jonah’s daily webcasts for January 2024: https://docs.google.com/spreadsheets/d/1OBDmStVJW5REHBWYr6FJKTxURs36QAruCW1L1hD4q34/edit#gid=1687267844
PS: I still don’t have a position in VTEX but it’s on my watchlist and there’s always a chance I start a small position in the next few weeks, perhaps with a stop loss.
Valuation
I talked alot about valuation in the introduction of part 1 of this deep dive but I’ll go through some of the numbers again. Nobody expects VTEX to be a hypergrowth stock but they can still deliver great returns for shareholders as long as we see some margin expansion for EBITDA and net income.
Based on Friday’s closing price of $6.88, VTEX currently has an enterprise value (EV) of $1.083 billion so it’s definitely on the smaller side of stocks that I’ll cover this year however if we see small/mid caps have a strong year as many are predicting then I think it’s very possible names like VTEX outperform the large cap software companies like Shopify (SHOP), Salesforce (CRM), HubSpot (HUBS), Microsoft (MSFT), etc.
VTEX is growing just as fast as any of these other companies but trades at a more reasonable multiple given the fundamentals with way more margin expansion potential over the next few years which means bigger EBITDA and EPS growth numbers on the horizon which usually means multiple expansion and good stock performance.
Using the $1.083 billion EV for my calculations and the consensus estimates below, VTEX is currently trading at:
4.4x 2024 EV/SALES and 3.6x 2025 EV/SALES
33.3x 2024 EV/EBITDA and 23.0x 2025 EV/EBITDA
97.5x 2024 EV/NET INCOME and 43.1x EV/NET INCOME
VTEX is not super cheap but definitely not expensive, if they really grow net income by triple digits for each of the next 3 years then paying 43x 2025 net income is justified and leaves plenty of room for multiple expansion. Using PEG ratio of 1.0x, just throw a 44x multiple on $82 million of net income in 2027 and you have a $3.6 billion valuation plus ~$384 million of cash and you get $3.984 billion, now divide that by ~199 million shares outstanding in 2027 and you have a $20 stock which is 190% upside over the next 3-4 years. This is certainly realistic if VTEX hits the numbers below, if they exceed these numbers then the upside is likely even greater.
Investment Model
The numbers I’m using in my model are in-line with the current consensus estimates but keep in mind we only have a few analysts that cover VTEX so the actual numbers could end up being very different.
If VTEX hits these numbers below (slightly different than the estimates above because I’m using more linear numbers) than the stock could have ~200% upside or more through 2028 plus I’m only using 16% net income margins in 2027 vs the current estimates at 19.8%
Analysts
As you can see there are only a few analysts that cover VTEX and only two of them have updated their rating and/or price target in the past 6 months — this is also why I’m not sure if we can trust the current consensus estimates and therefore a company like this needs to watched even closer by investors because you can’t rely on analysts to provide intel.
Here’s what the analysts have been saying (it’s not much):
December 18th: JPMorgan analyst Marcelo Santos raised the firm's price target on Vtex (VTEX) to $6.50 from $5.50 and keeps a Neutral rating on the shares after updating estimates following the company's "strong" Q3 results and "constructive" guidance for Q4. However, the firm notes it is reducing numbers slightly for the coming years on the back of the negative impact of Argentinean devaluation. The firm currently favors MercadoLibre (MELI) and Totvs (TTVSY) in the LatAm Tech space, the analyst noted.
August 22nd: UBS upgraded Vtex to Buy from Neutral with a price target of $7.50, up from $4.70. The firm appears to be in good position to maintain fast-paced revenue expansion while expanding its margins, the firm tells investors in a research note. UBS adds that the number of new contract signings for Vtex is rising while the sales cycle is stabilizing, accelerating client monetization.
June 23rd: DA Davidson analyst Franco Granda raised the firm's price target on Vtex to $5.50 from $5.00 and keeps a Buy rating on the shares. The company is well set to deliver a solid second half of the year, pending any implosion of the economy, the analyst tells investors in a research note. Analysis of website data suggests new store momentum has accelerated thus far this quarter, creating upside potential to estimates for the second half of the year, the firm states, adding that positive macroeconomic indicators from Brazil and improving conditions in other key Latin American countries bode well for increased Vtex activity.
Technicals
VTEX is basically trading back to those summer highs but keep in mind it’s still up ~47.5% from the October lows and still has an unfilled gap at $5.91 which may or may not get filled.
If I was going to start a position there are a few spots where I’d consider doing so…
Wait for VTEX to push through the recent highs above $7.15
Hope that VTEX pulls back to the the 50d ema/sma around $6.40 with stop loss just below
See if VTEX bounces off the 21/23d ema in the next few days with the $6.68 summer high just below so stop loss could go below at $6.60
Conclusion
VTEX is in a great industry (ecommerce, operations and software) with many years of growth left. With that in mind, if you’re looking for a company that does most of their business outside of the US (primarily in LATAM) than VTEX could be a good fit for your portfolio.
Keep in mind this is a smaller company with ~$1.2 billion market cap although they do have ~$200M in cash and should be profitable this year for the first time which means they won’t be burning cash anymore and the combination of 20-25% revenue growth over the next few years with rapid margin expansion could lead to some outsized EPS growth which could result in big gains for shareholders.
I do believe that 2024 has the potential to be a record setting year for M&A but no clue if that means VTEX gets gobbled up by a larger company or perhaps private equity is attracted to them for all the reasons we mentioned in this deep dive. Even if I thought VTEX was an acquisition target I could never own it for that reason alone.
I definitely like that the founders are still running the company and still have a ~30% equity stake which means they’re motivated to increase the stock price.
Other small caps I like going into 2024 (and own ) are TMDX, ASPN, SDGR, INDI, EOLS, and HIMS but after this deep dive I might need to add VTEX to that list of small caps that have 100% or more upside over the next 3 years.
If I do start a position in early 2024 it would definitely be on the smaller side, probably around 1% however it’s also likely that I don’t do anything with the stock until we get Q4 earnings with 2024 guidance. I don’t think we need to rush into anything right now, the market will give us some pullbacks sooner or later. Nothing wrong with sitting on some cash and being patient for better opportunities.
Additional Sources
Management – https://www.investors.vtex.com/governance/executive-management/default.aspx
Board of Directors – https://www.investors.vtex.com/governance/board-of-directors/default.aspx
Ownership: individual investors (~31%), VC/PE (~29%), General Public (~25%), Institutions (~15%)
Have a great week!!!
~Jonah
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Disclaimer: The stocks mentioned in this newsletter are not intended to be construed as buy recommendations and should not be interpreted as investment advice. Many of the stocks mentioned in my newsletter have smaller market capitalizations and therefore can be more volatile and should be considered more risky. I encourage everyone to do their own research and due diligence before buying any stocks mentioned in my newsletters. Please manage your portfolio and position sizes in accordance with your own risk tolerance and investment objectives.