I’ve gotten a few reader questions about this new pitch from Shah Gilani over at Money Map Press, and we haven’t covered any of his teaser pitches in a long time so it seems like we’re due to take a look. He’s selling charter memberships to something he calls the Hyperdrive Portfolio, with his goal being to “build a portfolio that triples in value over the next 18 months.”
So that’s certainly ambitious — and it’s an expensive subscription, $1,750 a year, though they do say that they’ll offer refunds if they fail to meet their “performance guarantee” (which means, only after the full year is up, and only if they did not “triple your money on at least 10 hyperdrive stocks,” so it may be like pulling teeth — but that’s at least a little better than the “no refunds ever” folks).
And what are those “Hyperdrive” stocks? Well, we get some hints dropped along the way so we’ll try to feed those to the Thinkolator for you and get some names, but they’re basically the “work from home” stocks that have soared this year in the wake of the COVID-19 pandemic and office shutdowns. He compares the growth here to past surges in things like streaming video (Netflix), e-commerce (Amazon) or mobility (Apple), among other things.
Here’s a little taste from the ad…
“This time around, it isn’t consumer technology or a new device or a new way to watch TV – it’s a total upheaval of the American workforce – the movement from office space to virtual space….
“We saw the beginning of this movement a few months ago as businesses shut down.
“Companies scrambled to onboard their employees to Zoom and hustled to make sure everyone had a reliable working desktop….
“But now we’re witnessing something different – the realization that working from home is not temporary but permanent. It is the new status quo.
“Just last week, Microsoft announced their employees can work from home… FOREVER.”
That announcement from Microsoft came on October 9, so that’s no longer quite “last week,” but close enough, (this ad is dated “November 2020,” and I saw it for the first time on Wednesday).
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So this sums up the big picture argument:
“My prediction? The total transformation of the American workforce is here to stay.
“It’s Going to Be One of the Biggest Capital Waves in History…
“And the Greatest Buying Opportunity You May Ever See.
“My analysis shows $353 billion of wealth being created in a very short time frame.
“But it’s not just going into any stock.
“It’s piling into five specific tech companies over the next 18 months alone.
“The ones with the largest CAGR, or compound annual growth rate.”
He puts a lot of weight on this “CAGR” idea, probably largely because most novice investors might not have heard the term. He basically says that in this “hyperdrive” moment, those big CAGR numbers from growing companies will be exaggerated in the stock price…
“Typically, a 10% CAGR translates to an equal movement in share price. CAGR of 10%? That stock will probably go up 10%.
“But add the power of a hyperdrive situation and that changes.
“In the Fastest-Moving Hyperdrive Situations, a 10% CAGR Could Translate into a 100% Share Price Movement…”
To which I might ask, “A CAGR in what, exactly?” But more on that in a moment.
He provides some examples, too, like Apple (AAPL):
“I’m sure you know Apple has been one of the most successful stocks in history.
“Well, look at one of their biggest hyperdrive periods – between May 2016 and September 2020. Across that time frame, their CAGR was 49%….
“The result? A 460% stock surge over that same period.”
CAGR is just a calculation you get from putting the beginning value, the ending value, and the time period into a formula. Apple did not have any financial metrics (earnings, revenue, etc.) that grew at a 49% CAGR from 2016-2020, as far as I can tell, but the AAPL share price did have a compound annual growth rate of about 50% for those three and a half years, and a total return in the 400-450% range depending on which days you choose in May and September of those years. Forecasting that a particular CAGR for the share price over a set length of time means a specific rise in the share price is just math, not so different than saying that two plus two will equal four.
So yes, saying that Netflix rose by 800% in value over 3-1/2 years and that it had a CAGR of 85% are just two ways of expressing the same thing, so from what I can tell it’s just a way to use a highfalutin’ term like CAGR to make yourself look wise and prescient. Or to impress those who don’t understand what “compound return” means.
He gives a few more of those, too, and the splashy graphics make it sound pretty and perfect with near 10:1 ratios for other big growers like Tesla (89% CAGR for 3-1/2 years, 860% share price return) and Netflix (85% CAGR for 3-1/2 years, 800% return)… but we should be careful about assuming any 10:1 reasoning here. Posting a 10% CAGR in an investment for a few years does not mean you automatically have your share price rise by 100% in some magical way… a 10% CAGR for three years translates into a 33% total return — the 30% is just the simple return of 10% a year, and the extra 3% comes from compounding (the fact that after a year you had $110, and a 10% return on that is $11, not $10, etc.). It becomes exponential as those annual return numbers get higher, so it’s certainly true that big consistent returns lead to much greater compounding power, but there’s no magic… to maximize growth you either need to compound for a long time, or grow fast, and if you’re fortunate enough to do both, well, it’s extra fun.
So yes, of course, if we had known those companies would post that kind of share price growth it would have been smart to buy them, whether you express that growth in total return or CAGR, but that doesn’t mean predicting future revenue or earnings growth or share price increases has become easier.
If you want to try playing around with what CAGR means and how compounded growth like that works, by the way, I recommend this handy calculator from Moneychimp — there are plenty of similar tools out there, but this one is nice and simple.
But anyway, let’s see if we can get to the actual names, shall we?
Gilani tells us these five “work from home” stocks will continue the remarkable growth they’ve shown this year:
“Right Now, on These Five Virtual Workforce Stocks…
“We’re Witnessing CAGRs Light Years beyond Those Examples:
“I’m Talking About 62%… 129%… 108%… Even 140%… Growth Rates We’ve Already Seen This Year.
“Project those forward, and these companies’ valuations could grow by an astounding $353 billion in just 18 months.”
Pretty much any “work from home” or “cloud software” company you can probably imagine is already trading at all-time high valuations, so to some extent the market is already on board — we’re already expecting these kinds of stocks to continue to grow dramatically from here, albeit at perhaps a slower pace than the explosive pandemic-driven growth many of them showed so far in 2020.
So which ones does Gilani think are particularly worthy of attention? Let’s see what clues he drops… we’ll go with the hints he uses on the order form:
“VIRTUAL WORKFORCE STOCK # 1
“The tiny Unified Communications firm, which integrates a company’s videoconferencing, phone system, email, chat, and presentations on a single platform. They just inked a deal with a $1.3 billion cloud company, handing them 100 million users on a silver platter. And now they’re about to cut a huge chunk away from Zoom’s market share and grow by $26 billion.”
And a few more clues from the text of the ad:
“Wall Street Called This Deal, and I quote, “a Massive, Multi-Year Catalyst” ….
“The partnership just handed this tiny Unified Communications firm over 100 million users – and 4,700 new business clients on a silver platter.
“It also allows their video, phone, and messaging communications technology to integrate with Microsoft Office 365, Salesforce, Zendesk, and Google G Suite….
“As of 2019, revenues were more than $900 million.
“I’m Projecting It to More than Double to over $2 Billion by the End of Next Year….
“My projection is that the valuation of this company could soar by $26 billion over the next 18 months alone.”
At this point, that would be almost exactly a double — Thinkolator sez this is RingCentral (RNG), and they currently have a market cap of about $26 billion… fueled in part by that strategic partnership they made last year with Avaya (AVYA) to “accelerate” Avaya’s “transformation to the cloud.”
RingCentral’s core offering is “UCaaS” — Unified Communication as a Service. This is how they describe themselves:
“RingCentral is a leading provider of global enterprise cloud communications, collaboration, and contact center solutions. More flexible and cost-effective than legacy on-premises systems, the RingCentral platform empowers employees to work better together, from any location, on any device, and via any mode to serve customers, improving business efficiency and customer satisfaction. The company provides unified voice, video meetings, team messaging, digital customer engagement, and integrated contact center solutions for enterprises globally.”
They posted a mild “beat and raise” quarter last week (slightly better than expected, in other words, which is kind of the minimum these days), and the stock is now, like many cloud “work from home” stocks as the virus spread and headlines get worse again in the cold weather, back to near its all-time highs. Right now it’s trading for about 24X sales, is profitable on an adjusted basis (if you ignore stuff like stock-based compensation), and is growing revenues by about 30% this year… very impressive, if quite short of the nosebleed growth that some “work from home” stocks have gotten. Analysts have revenue growth of about 25% penciled in for next year, and the adjusted EPS gives them a forward PE ratio of about 250. I don’t know much else about this one and have never looked deeply at the financials, but it has clearly done well and is one of the obvious “work from home” success stories this year, (though it was also growing at a decent clip in the previous few years).
If you’ve got thoughts on that one, feel free to throw ’em on the table… my first impression is that if the growth is only in the 25% range, they need it to be very predictable to justify their current valuation (and maybe it is)… but if we’re going to get to the others I’ll have to move on…
“VIRTUAL WORKFORCE STOCK # 2
“The Anywhere Workplace company whose magic interface technology lets employees access dozens of work apps with a single login. They’ve been bringing in piles of cash thanks to signing mega-blue-chip clients like Fujitsu, Nissan Motors, and Anheuser Busch. All that new revenue should rocket the valuation of this small company up by $43 billion.”
OK, that doesn’t narrow it down so much… other clues?
“… all that calling, talking, chatting, and messaging won’t matter if employees don’t have their data and documents at their fingertips.
“That’s where the next virtual workforce technology comes in…
“I call it Anywhere Workplace….
“Fujitsu just signed up with 140,000 employees.
“Nissan Motors with 136,000 employees.
“German IT giant Bechtel with its 11,000 employees, and Schroders of London with 2,500 employees….
“… clients pay a monthly fee for every single employee! So the more employees a client has, the more revenue this Anywhere Workplace company will bank.
“For example, this product costs about $25 per month per employee.”
And a couple more tidbits…
“… this company just locked in an exclusive $1 billion cloud space contract with a very big player.”
“… this company’s subscription revenue is already up 42% from a year ago…
“In fact, 62% of this company’s $3 billion revenue is from recurring revenue….
“I Expect to See Their Subscription Revenue Leap 50-Fold.”
Hoodat? Thinkolator sez this is very likely Citrix Systems (CTXS), which is an older company that’s been transitioning to offer “cloud” services and increase their subscription revenue — and did commit to a $1 billion cloud spend contract earlier this year. They do have annual revenue of about $3 billion, and if this answer is correct those other numbers (62% and 42%) appear to be for 2019 — as of last quarter, subscriptions have grown more impressively, 77% of their bookings are now subscription deals, and their annualized recurring revenue grew 53% in the third quarter. Plus, at least one of their “cloud” services, Citrix Workspace, is indeed offered at $25/user/month.
The notion that they’ll be growing subscription revenue 50-fold from here sounds pretty fanciful, so that holds me back from being certain that this is our best answer. Feel free to chime in if you have a better match — one key metric is that not many of the smaller “work from home” stocks have come close to that $3 billion revenue number, and most of them get far more than 62% of their sales from “recurring revenue.”
As with many “in the transition to cloud” companies, the revenue growth at Citrix isn’t great on the top line — they’re not selling so many enterprise systems or contracts, and subscription revenue is recognized more slowly, but the subscription growth is pretty impressive and should lift them eventually. And it’s pretty rationally valued, at about 20X current-year adjusted earnings, so if they can generate the earnings growth that everyone expects (about 10% next year, then accelerating a bit), paying 20X earnings isn’t too tough to swallow. I don’t know what the competitive landscape is like, or whether they’ll be able to maintain their margins and hit those growth targets — or even exceed then, as Gilani must be assuming if this is indeed the second stock — but it’s not a bad idea and there is a strong and steady business underneath it, so absent a strong competitive threat that I’m not aware of, my guess is that they’ll hold up pretty well.
“VIRTUAL WORKFORCE STOCK # 3
“A Virtual Command Center company that uses groundbreaking AI technology to keep hundreds even thousands of remote employees working on the same network seamlessly. Even if they’re no longer connected to a company’s server. Plus, they’re getting ready to release details of a partnership with the world’s leading AI chipmaker that could send their valuation soaring by $129 billion.”
Other hints from the ad:
“… this platform uses AI to pinpoint the exact location of each remote employee…
“Determines the devices they’re working on…
“Connects them all, their apps, data, and work programs using the cloud…
“Then runs a completely automated virtual workforce system with little or no work required from the IT department.”
And a couple customer connections:
“One client is one of America’s largest banking institutions. This technology cut its infrastructure cost by 70%!
“Semiconductor firm MediaTek said it slashed deployment time by 80%.
“And as Good as It Is… It’s About to Get a Whole Lot Better.
“You See, This Company Just Signed a Partnership Deal with the Number-One AI Chip Design and Manufacturing Company in the World.”
Thinkolator sez this one’s the granddaddy of server virtualization, VMWare (VMW), which has been transitioning to become a “cloud” company for years now. That partnership deal was with NVIDIA a couple months ago, it is, like Citrix, a relatively large and boring slower-growth company and trades at a fairly rational valuation based on current earnings, and they do offer a variety of products around their Digital Workspace platform.
And yes, MediaTek is one of their case studies, and they do report cutting their “deployment time” by 80% — deploying what, I don’t know, I was not interested enough to read that ‘white paper.’. I didn’t locate the banking services example, but it’s very likely a data center cost-savings case study, since that original offering of server virtualization and optimization, and now cloud services to move away from running your own data center, are the main ways in which VMWare pitches its services as cutting costs.
Gilani sees them adding $129 billion in value over the coming years, apparently, which would be roughly a 200% return from here. Analysts are looking for more like 20% returns next year, but, well, who knows? They’re trading for about 20X next year’s adjusted earnings right now, with expectations of revenue growth at about 10% and earnings growth of close to 20%, so that’s not a crazy valuation. Nor is it crazy growth, at least in the context of stocks like Zoom Video (ZM), but perhaps they’ll get there.
“VIRTUAL WORKFORCE STOCK # 4
“The Automated Collaboration firm that lets hundreds of employees collaborate online simultaneously. And allows folks to get astonishing levels of work completed from home. In fact, this team collaboration technology just helped Elon Musk send two SpaceX astronauts to the International Space Station. Now it’s ready to shoot to the moon with a $91 billion valuation increase.”
“Thanks to This New Technology, Productivity Hasn’t Gone Down… It’s Gone through the Roof.
“Remote workers at JD Edwards are 20%–25% more productive…
“American Express 43% more productive…
“And the workforce for Best Buy and Dow Chemical are both also 35%–40% more productive.”
I expect those are general “remote workforce” productivity numbers, not specific to one software platform (those numbers have been cited in lots of places and are not new this year).
So we’re going to need some more clues…
“… our hyperdrive company creates completely custom Augmented Collaboration platforms for each of their clients.
“That’s critical because not every business works in the same way. With this technology, a business can design their own Augmented Collaboration experience to meet their exact needs – up to 4,000 different apps and options at their disposal.”
OK, getting warmer now… more, please!
“This Company Now Has over 170,000 Customers.
“They’re Also Sitting on $2.2 Billion in Cash….
“For example, Elon Musk recently deployed this company’s Augmented Collaboration tools to launch SpaceX’s first private, human-carrying rocketship into orbit.”
That must be our old friend, Atlassian (TEAM), the maker of collaboration software that was indeed used by SpaceX and NASA on the recent launch project. They’re most well known for their Jira and Bitbucket software collaboration products, I guess, but they have other planning and collaboration offerings as well.
And yes, it’s in the “nutty valuation” camp like so many other cloud SaaS companies — the growth in the share price has actually been pretty consistent over the past few years, but it has quietly become a pretty gigantic company, with a $50 billion market cap now, and they’re just barely profitable on an adjusted basis (analysts see $1.44 in earnings per share next year, so that’s a forward PE of 140… cheap compared to Zoom Video or Ringcentral, I suppose, but still pricey). They’re growing revenues at about 25%, and that has been quite consistent — they really haven’t gotten a huge revenue surge from the pandemic like some cloud companies have, though obviously their services are more critical now than they might have been otherwise.
There’s an interesting history of Atlassian here if you’re curious, it doesn’t get quite up to the present day but it will give you a better understanding of how they built the company through acquisitions and integration. I’ve never been able to get a handle on this company, though I’ve taken a look a few times, and more’s the pity for me — it has done quite well (that 170,000 customers number is still often cited for Atlassian, but it’s now well over 180,000, in case you’re curious). And it’s nice to see companies built outside of California — if Shopify is the pride of Canada when it comes to tech stocks, I guess Atlassian is the pride of Australia.
And yes, Atlassian is a SaaS company now, more than half of their revenue comes from subscriptions, but they’ve also been around for a while so there’s still some legacy transition going on — there’s a piece from a Fool writer here about Atlassian’s ongoing migration to cloud services following their last earnings report.
And one more…
“VIRTUAL WORKFORCE STOCK # 5
“The Cyber Systems Security firm cornering the $3.4 trillion cyber market with its customized remote worker cyber protection products, all virtually hack-proof. It has an unbelievably high CAGR of 140%, a real potential for a fast $64 billion growth eruption.”
And, of course, cybersecurity is a big deal… ever more so in a “work from home” world where your sensitive documents are on the same computer that your eight-year-old uses for remote classes…
“Cyber Systems Security Has Now Become One of the Biggest Businesses in the World, Just Recently Edging over $3.4 Trillion in Sales.”
Which one is this specifically, though? There are a lot of cybersecurity offerings out there (and, indeed, half of the companies mentioned above offer some sort of “security” service as part of their cloud product suites). Here’s what Gilani says:
“Its Technology Blows Every Other Cybersecurity Company Away… Delivering 10 Times the Protection of Comparable Systems….
“As soon as the pandemic hit, this company jumped on the virtual workforce bandwagon early… creating customized security programs for employees working from home.”
And they apparently offer more than one product — this is not my field, I confess, but I imagine everyone offers more than one product…
“You see, they brilliantly recognized that there are three kinds of offsite workers – and each needs a different kind of protection.
“For the majority of remote workers, they’ve created a virtual private network, or VPN.
“It evaluates thousands of internet and email traffic flows, spots suspicious websites, and destroys viruses.
“For the power user, typically a manager, they deploy a wireless access point, or WAP.
“It uses continuous threat intelligence to stop suspicious attacks.
“And for the super user, an executive with access to sensitive data, they employ proprietary AI machines to protect against encrypted malware, malicious botnets, and ransomware.”
And we get a bit more jargon, too, in case you’re into that:
“A highly advanced new protection tool powered by stealth technology to check each user and device before allowing access to business networks….
“It makes this company’s systems practically hack-proof.”
That’s not enough to be definitive, since there are so many different cybersecurity companies, but given the general tone of the tease I’ll go out on a limb and guess that Gilani is teasing Fortinet — he uses the same kinds of wording about the three kinds of remote workers as Fortinet does here, and the idea of “ten times better” protection is also common in Fortinet’s marketing materials.
Obviously not conclusive, but Fortinet is a solid company with pretty good growth — they’ve certainly had their ups and downs over the past couple yeras, but as of now they’re growing revenue at close to 20%, have very high margins, and are trading at a bit over 30X next year’s expected earnings. They’re not likely to get a lot more efficient, so revenue growth will have to do the heavy lifting, and that’s probably the primary reason for any caution you might have — if you think Fortinet’s revenue growth will slow down (15% is the growth expected next year), then it’s tough to pay this multiple. I have not invested in FTNT, largely because I have a lot of trouble differentiating the products and services of the major cybersecurity companies, but the numbers say the business is operating extraordinarily well — the only question, really, is how long that lasts and what you should pay for it. There’s a glowing story on them from a Motley Fool writer here if you want to be talked into FTNT.
And we’ll close with a little more of the tease…
“… with these Virtual Workforce stocks I’m telling you about today.
“In fact, we are at the very beginning of Phase 2 where all the fad stocks are fading and true winners are priced low and starting their big climb.
“That’s Why Getting into These Stocks Now Will Make You a Very Pretty Penny over the Next 18 Months.”
Gilani also says he’s got some special techniques to maximize your returns from these kinds of investments…
“I’m Going to Show You How You Could Make Obscene Money on All of Them Using a Technique I Call Profit Stacking.
“It’s a series of easy moves that professional traders use to play stocks over and over again for additional gains.
“The first move I’m going to show you today is a way to maximize profit potential as a stock moves up.
“Most everyday investors know nothing about this strategy. But the hedge fund traders I know use it religiously.
“The second move is a fast way to grab lucrative bonus money using a very small percentage of your capital. The stake is small due to the small amount of money risked… but with exciting speculative plays like these, the rewards can be like hitting the lottery over and over again.
“And the third is a very special way to create what I call Synthetic Dividends, so you can enjoy a steady stream of income every quarter from these stocks.”
OK, so his “Profit-Stacking Technique #1: Reverse Scaling” is just “add to your holdings when they go up.” That’s similar to the “ignore your losers, buy more of your winners” strategy often talked up by the Motley Fool’s David Gardner for his Rule Breakers folks — the market is telling you which stocks are doing well, all you have to do is listen.
It certainly works well during times of great growth and momentum, and for the best companies… whether or not it works next time things crash, well, that’s another matter. I won’t try to talk you out of focusing on the best companies, which also tend to be expensive and rising in price, but at least be mindful of position sizing and the need for diversification. Unless you’re a real gambler (and young, or otherwise able to afford to wait through big investment downdrafts), you don’t want your whole portfolio to be in “buy high and then buy higher and buy higher again” stocks.
But boy, in recent years that sure worked great.
His “Profit-Stacking Technique #2” is just “options”…
“… we’re going to take small amounts of money, take small options positions, and shoot for gargantuan gains.”
That does make things more fun, and it has worked well for me this year — though some years it surely doesn’t. I do trade around positions to some degree and I often take on a position that’s partly in options and partly in equity if I’m just opening a position, particularly if it’s a richly valued and volatile stock and I want to limit my capital commitment. It’s a little harder to do than it was a year ago, since volatility is high (volatility numbers you hear are really just “options prices”, so if someone says volatility is high that just means option prices are high — people are bidding higher for both the chance to get leveraged gains with call options and, on the flip side, to buy protection with put options).
And that leads us to “Profit-Stacking Technique #3: Synthetic Dividends.” Gilani says that…
“Using a simple options move…
“You can create good-yielding Synthetic Dividends which could be as high 7%, 8%, 10%, or more under favorable circumstances on every stock you purchase.”
That just means “selling options” — either you sell someone the right to sell you their stock at a set price in the future (selling a put option), or you sell someone the right to buy stock from you at a set price (selling a call option — if it’s a “covered call”, that means you own the stock and are backing up your call option sale with your own shares).
This can indeed be a nice way to generate some income, but, of course, you don’t get it for free — if you sell a covered call at a price 20% above where the stock currently sits with an expiration date in a few months, and the stock instead rises by 100% during that time, you miss out — you get to keep what was paid for the call, but you have to sell your shares at that price. Still profitable, but there’s a strong “missing out” feeling that some people have trouble with — you have to approach trading like that with some discipline and not feel bad about getting it wrong sometimes, or about selling a stock that you’ve fallen in love with.
And since volatility has been relatively high, of course, selling options is more lucrative than it would have been a year or two ago — so there is that. I don’t know what specific techniques Gilani might use, but generally the rule is what you would expect: The more risk you take, the better the return. If you sell options close to the current price, people will pay more for them and your income will be higher, but you take a bigger risk that those shares will be called away… if you sell options at a price so high you think it won’t be reached, probably other people will agree with you and not bid as much for those options.
So that’s apparently what he’s up to here:
“I don’t just make a single investment.
“I slice and dice these stocks every which way, using my Profit-Stacking techniques to ratchet my profit potential through the roof.
“Listen, have no doubt…
“These Techniques Work the Best When You Are Working with Stocks in Hyperdrive…
“And the Stocks We’re Looking at Today Are About to Move at Lightning Speed.”
Man, that sounds exhausting… usually I try to remember the old rule that the more I trade, the more opportunities I have to make a mistake, but who knows, maybe he’s good at it or is really just making incremental trades around a core position (which a lot of folks do, I expect). If you try out Gilani’s service and like or dislike what you see after giving it a shot, do pop back to our Hyperdrive Portfolio page and let your fellow readers know what you thought.
And, of course, if you’ve any thoughts about those five “Hyperdrive” ideas we talked about above, including better suggestions for those solutions, if you’ve got ’em, or just other favorites you think folks should consider as plays on this continuing “work from home” trend, please do chime in and share your thinking with a comment below. We don’t bite. Thanks for reading!
Disclosure: This is the rare “cloud” teaser pitch where it turns out I don’t own any of the companies recommended… though I do own shares of Shopify, Alphabet, NVIDIA and Amazon, all of which are mentioned above. I will not trade in any covered stock for at least three days, per Stock Gumshoe’s trading rules.