Peter Lynch is one of the best fund managers in history. He is also the author of “One Up on Wall Street” and illustrates how investors can often find some of the best investments in their daily life and have an advantage over Wall Street. Lynch was fond of companies that operate in boring industries or provide mundane products or services as this can often be reflected in the share price. We delve into three boring companies to buy now.
DocuSign (NASDAQ: DOCU) is an e-signature provider that facilitates the agreement process and went public in 2018. It is the leader in the e-signature market, controlling about 70% of the market share with Adobe’s (NASDAQ: ADBE) sign solution being the main competitor currently.
DocuSign has 822,000 paying customers as of Q3 with enterprise and commercial customers growing by 52%. It boasts several high profile customers, such as 7 of the top 10 global technology companies, and 18 of the top 20 global pharmaceutical companies. It has a dollar-based net retention rate of 122%, demonstrating its product’s stickiness and the increasing spend by customers over longer timeframes.
Revenue was $382.9 million, an increase of 53% year-over-year (YoY) with subscription revenue making up over 95% of total intake. Free cash flow was $38.1 million compared to negative $14.1 million a year prior, and it also reported record profitability with net income of $46 million nearly double that of last year.
DocuSign Agreement Cloud is another opportunity for the company to control the entire agreement process and expand its total addressable market (TAM) to $25 billion. It has made several strategic acquisitions to complement the agreement process such as Seal Software which through A.I. will scan and flag any issues in the document.
Blackline (NASDAQ: BL) offers automated accounting services to small and medium-sized businesses, and its growth has accelerated due to COVID-19. This stock has flown under many investors’ radar despite accolades such as being recognized as a Leader in a Gartner Magic Quadrant and strong growth.
Blackline estimates that it has a large and underpenetrated (TAM) valued at $28 billion. Last year, it had revenue of $336 million which suggests a long runway for growth. It has 165,000 customers growing at 18% annually across 130 countries, including 56% of the Fortune 500. Blackline’s product is sticky as it enables companies to cut costs, and one example is Coca-Cola, which reduced expenses by $600,000 annually due to Blackline’s solutions. This stickiness is shown in its dollar-based net retention rate of 107% in Q3 of 2020.
In Q3, revenue came in at $90.5 million, an increase of 21% YoY and a net loss of $8.6 million down slightly from the year prior. It continues to invest heavily in research and development, spending $14 million in the last quarter. It also acquired automated accounts receivable company Rimila to expand its capabilities and its TAM.
It will be no great surprise to anyone that has read “One Up On Wall Street” to see Waste Management (NYSE: WM) in the lineup. Like its name suggests, Waste Management is a comprehensive waste management environmental service and is a leader in North America. It has provided steady growth and has a rising dividend.
Unlike the other two companies, Waste Management hasn’t thrived during the pandemic but has proven to be resilient in the face of financial crises. Revenue contracted in Q2 of 2020 by 10% but picked up in Q3 with a 2.7% decline. Management has stated that it “has learned this year that we can permanently operate our business with a lower cost structure.” It also expects to finish the year with the highest operating margin in its history at 28-28.5% and in Q3 posted net income of $390 million. Therefore, Waste Management is likely to emerge from the crisis stronger than it was before.
It is also an attractive investment due to the moat that it possesses through the ownership of roughly 250 landfill sites across North America, which means that other waste providers may use them. It also continues to invest in its business and acquired Florida-based Advanced Disposal last year, growing its footprint.
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MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.
Contributing Writer at MyWallSt
Colm's favorite stock is Virgin Galactic as it is representative of his visions for our world in the future.