Dear Followers&Copiers, Another Financial Year (FY) has passed, the reporting season is over and it’s time to update the equity portfolio of the Global Leaders Portfolio (GLP) in terms of the SIAScore $SQ we use.
Let’s quickly remind what SIAScore is and how the process :
S1: growing sector 1pts/0pts,
S2: incumbent or prospective global leader 1pts/0pts,
S3: growing or stable wide margins (40%+ gross; 3yr avg) 2pts/0pts,
S4: Net Debt/EBITDA <1.5 (last 3 ended FYs) 2pts/0pts,
S5: above-average cash flows (FCF/MktCap (last 3 ended FYs) > S&P500 Dividend Yield or US 10yr Treasry Yield (higher of the values)) 2pts/0pts;
MAX TOTAL SCORE: 8pts/MIN TOTAL SCORE: 0pts/MIN SCORE TO QUALIFY: 4pts
In this post I run a SIAScore update for $SQ, which “is a commerce ecosystem. The Company enables its sellers start, run and grow their businesses. It combines software with hardware to enable sellers to turn mobile devices and computing devices into payments and point-of-sale solutions. Once a seller downloads the Square Point of Sale mobile application, they can take their first payment. With its offering, a seller can accept payments in person via magnetic stripe (a swipe), Europay, MasterCard, and Visa (EMV) (a dip), or Near Field Communication (NFC) (a tap); or online via Square Invoices, Square Virtual Terminal, or the seller’s Website. Once on its system, sellers gain access to technology and features, such as reporting and analytics, next-day settlements, digital receipts, payment dispute management and chargeback protection, and Payment Card Industry (PCI) compliance. On the consumer (buyer) side, Square Cash offers individuals access to a way to send and receive money.” (CNBC)
S1-S1: these qualitative points are clear. $SQ both operates in a growing sector (S1) and is a potential global leader (S2). In both cases the company gets 1 point.
S3: 2 points 2018/2019/2020/AVG/last yr AVG 49,00%/42,90%/28,80%/40,23%/40,5% $SQ maintains its gross profit margin right above our minimum treshold of 40%. the YoY average trend is flat. Not much improvement, but no susbtantial worrisome deterioration as well.
S4: 2 points
2018/2019/2020/AVG/last yr AVG
-5,48/-2,94/-1,53/-3,32/-2,81
Square managed to improve its 3-year average net debt position. The company is very comfortably in a net cash position and manages to improve it.
S5: 0 points
2018/2019/2020/AVG/last yr AVG
1,00%/1,50%/0,24%/0,91%/1,07%
The FCF yield worsened last year due to (s) substantial increase in Capex (over 2x YoY) and a YoY worsening of OCF. Simultaneously the MktCap tripled, causing additional drop in the FCF yield. As an effect currently the $SPX500 dividend yield (1,53%) and the 10Y treasury note yield (1,6%) are both higher than the avg FCF yield for $SQ.
Aggregate SIAScore for $SQ: 6 points (no change YoY).
Conclusion: the company has stable financial situation, improving liquidity position, but went up substantially over the last year. In the long run it is still a good growth stock to hold, fulfilling the SIAScroe requirements. Tactically might be vulnerable after such a great 2020. Wroth buying into deeper corrections possibly.
Best regards, GlobalAlphaS
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