The folks at Cabot are so often enthusiastic about great growth companies, often picking them and re-picking them as they soar higher, that they sometimes remind me of David Gardner and his Motley Fool Rule Breakers… and given their yen for growth, I imagine both probably are coming off of exceptional years with the explosion in cloud, SaaS and “pandemic” tech stocks.
The latest Cabot pitch is for that Cabot Stock of the Week service ($997/yr), which is kind of a “greatest hits” newsletter — publisher Timothy Lutts picks his favorite idea from among Cabot’s stock advisory services each week, so they’re presumably mostly “growth” ideas, given Cabot’s quantitative bent, but they do also have a few dividend and value-focused newsletters… so there ought be some variety.
This time, though, it’s all growth on the docket — they say that this “blue ocean growth stock” is already up 708% and has “plenty of room to grow” and “looks like Tesla when we recommended it in 2011.” So what is it? Can we get you an answer for something a bit more free-ish than $997?
Here are our clues from the email about “This hidden company… headquartered in “the Switzerland of Asia”:
“One secret to this New-York-Stock-Exchange-listed company’s stunning success in becoming the most valuable company listed in high-quality Singapore is the background of its three founders.
“They are all now billionaires.
“Two of the three founders came to Singapore for an elite education, and two also hold degrees from prestigious American universities.
“These young entrepreneurs were also lucky to focus on and then dominate three key high growth markets in Southeast Asia – a market with 650 million people.
“The company’s stock is up 395% in 2020, after surging 255% in 2019.”
OK, so that rings a big ol’ bell — I think this is a pitch we’ve covered before. And, of course, if it’s had growth like that most investors will probably at least have heard of it, no? What other clues do we get? More from the pitch…
“There are three powerful engines propelling this company and stock.
“One market is gaming, another is digital payments, and the third is an E-commerce platform that is growing revenue much faster than Amazon with orders of more than 2 million a day.
“Revenue is growing at a rate of more than 100% because it is targeting some of the fastest-growing markets in the world. It’s ecommerce sales have grown exponentially from $47 million in sales in 2017 to $823 million last year.”
Ah, so now that’s starting to sound a bit more familiar. You might be ready with some guesses now, too, I imagine… but let’s check one or two other clues just to be sure:
“A leading conglomerate owns 30% of and has a strategic partnership with this company.”
Mmm hmmm, that tracks too. More?
“It has $2.6 billion is cash and only $1.3 billion of long-term debt.
“The company is expanding into India, which has a population of 1.3 billion people but only 10% of this company’s customers are from India.”
OK, fine, we can’t put off our answer any longer — this is indeed still Sea Ltd. (SE), the wild growth story that’s trying to become the MercadoLibre/Tencent/Shopify/Paypal of Southeast Asia.
And, of course, most growth or technology investors will probably have heard of this one by now, it has emerged from almost nowhere to become a $120 billion company (it was $20 billion a year ago… and came public at about $5 billion in 2017), riding the same gaming and e-commerce waves that propelled so many tech stocks during the coronavirus shutdowns last year… but with a little rocket fuel added in because they’re also a leader in one of the fastest growing parts of the world. And yes, thanks to that surging stock price, Sea is now the largest company in Singapore by market capitalization… though it doesn’t have a listing on the Singapore Stock Exchange (it only trades in NY).
I didn’t start buying this stock until after the coronavirus hit, in May of 2020, and even then, at $60 a share, the valuation felt challenging — but sometimes you just have to hold on tight when great companies get an investor tailwind, and count on position sizing and perhaps a stop loss order to protect yourself if that enthusiasm turns into a bubble that ends up popping. Sea is a real company, with huge scale and amazing growth, and it’s still cheaper than Shopify and a few other competitors if you look at metrics like price/sales… though it’s also unprofitable (unlike Shopify) and very dependent on Free Fire, and analysts are all over the map with their forecasts (none expect profitability over the next couple years, and in fact the company has routinely lost more than predicted thanks to their massive spending on growth, but the revenue predictions vary widely — for 2021, the high forecast is $10 billion and the low is $7 billion… obviously either represents rapid growth from 2020’s $4.4 billion, but the difference is abnormally huge).
Here’s a little snippet from a longer Annual Review piece on Sea that I posted about a month ago:
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Sea Ltd. (SE) posted very strong earnings again, and ludicrous guidance. They have some interesting potential growth engines in financial services, and a new investment arm, but the business is really dominated by two things: the Garena video game business (mostly their Free Fire mobile game), which generates a lot of cash flow, and the Shopee e-commerce platform (similar to Shopify or MercadoLibre), whose growth is being subsidized by Garena.
The numbers are jarring — 111% growth in bookings for their gaming business, Garena, to $1 billion in the quarter, and with $664 billion in EBITDA from that as Free Fire continued to be the most popular mobile game in the wo