Adding to Potential Multibaggers (in 5 years time?)

With the acquisition of ShockWave (SWAV) by Johnson & Johnson (JnJ) almost a done deal, I decided to divest the entire stake.

It’s a pity as I think SWAV has a great potential to become a multibagger! Oh well, there is really nothing I can do about it but be grateful for the 62% return.

With the sales proceeds, I decided to beef up some of my smaller positions in my US portfolio.

nCino

nCino describes itself as the All-in-One Cloud Banking Platform. It was founded in 2011 by a team of bankers and entrepreneurs who recognized the need for a single end-to-end cloud-based solution that would improve transparency, efficiency, and profitability.

Over the past five years, it has grown its revenue at a compounded rate of 39%. It is still loss making but non-GAAP earnings and free cash flow turned positive in the latest financial year.

Compared to the bank crisis period early last year, the banking sector is operating in a more stable environment and their spending is increasing again in recent time.

For the 1Q2025 earnings released two days ago, revenue grew by 13% YoY and free cash flow jumped by 82%.

If nCino can maintain the current growth momentum, then it should do well in time to come.

Novocure

Novocure is more of a speculative play. A lot depends on the results of their trials and approval by FDA.

I have unfortunately bought into their stories too early and bought their shares at a high US$187 during the bubbly 2021. Yes, the current price is 90% down from my initial purchase!

The lucky thing is I did not buy too many shares and averaged down a few times over the years. With the latest purchase, my average price is around US$51.

Whether this will become a multibagger or a penny stock will depend on the success of their trials in the coming years.

The Trade Desk

As shared in this article Initiated position in Alphabet and bought back The Trade Desk, TTD has quadrupled their revenue in 5 years! It has also grown its free cash flow per share from US$0.14 in 2018 to US$1.11 in 2023.

Yes, its valuation is hefty! It is currently trading at a forward P/FCF of 61x. However, it is can continue to grow at a good rate, then the current price would become cheap in the future.

For 1Q2024, revenue grew 28% YoY, while free cash flow stays around the same level as last year. One exciting story that emerged since my previous post is Netflix announced a new partnership with The Trade Desk.

“So while I believe 2024 will be remembered as a year of great tech-driven disruption in our industry, I also believe it is a year that The Trade Desk will continue to differentiate itself from its competitors, and continue to outpace the market. As the industry races towards $1 trillion TAM, we are incredibly well positioned to take more than our fair share.”
– CEO Jeff Green, 1Q2024 earnings call

If you believe in Jeff’s view, then there’s a huge market for The Trade Desk to grow into.

Zscaler

My initial purchase of Zscaler (ZS) and CrowdStrike (CRWD) years ago simply lie with my simplistic thinking that given the proliferation of technology in our daily life, the need for cybersecurity will definitely be on the rise.

I don’t understand the technical aspects of their technologies and platforms but both companies seem to have products that have garnered huge demand.

As seen from the earlier table, Zscaler’s revenue compounded at an annual rate of 53% over the past five years. In its 3Q2024 earnings released yesterday, revenue is up by 32% YoY and its Non-GAAP EPS is up by 83%.

Its share price does not mirror that performance though. While CRWD’s stock price has gone beyond its Nov 2021 high, ZS’s stock price is less than half of its all time high.

This was partly caused by this year’s 30% drop in its price due to negative investors sentiment on competitive concern.

I choose to believe the data from the company.

If Zscaler can continue to retain and add on more large customers, then the market will eventually recognise its potential.

Will these four become multibaggers five years later?

I definitely think that they have the potential but they might also turn out to be duds.

As per usual, I mitigate such risk by position sizing. These four have a position size of 1.0% to 1.6% each of my initial portfolio value.

Hence, even if they turn out to be duds, it will be a bearable loss.

Read more from source