- The ~$1.3 billion Saba acquisition will generate FCF of ~$225 million, more than Cornerstone's last two years of FCFs combined.
- With the goal to be a $1 billion-a-year business, the combined entity will deepen its moat in the enterprise LMS market.
- The stock is now down ~65% from its YTD-high, potentially factoring in a CEO change in the midst of COVID-19 and two major corporate actions.
- At ~$38 per share, the price is fair.
Cornerstone (CSOD) is one of the long-time players in the enterprise LMS (Learning Management System) market. The company has been in business for over 20 years. Since its IPO in 2011, growth has decayed from +60% to +7.5% today. Considering the $1.3 billion Saba acquisition that will produce a combined entity with a +$800 million of revenue and steadily expanding double-digit FCF margin, Cornerstone presents an interesting investment opportunity. Furthermore, the added risk factors as a result of recent corporate actions and COVID-19 headwinds have also put pressure on the stock to create a good entry point opportunity. Currently, the stock is down ~65% from YTD-high.
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