As I recently wrote that I believe Concur (CNQR) has been wrongly overlooked by investors over the past year. The firm remains one of the fast growing software-as-a-service names, faces little to no competition, and serves a greenfield market opportunity.
Despite that, the company sells at a significant discount to similarly well positioned firms, like NetSuite (N). On an enterprise value to 2012 expected sales (the most used metric to value software companies), Concur is currently trading at roughly 4.5x versus NetSuite at roughly 8x. This large premium that NetSuite is now trading with has all happened within the last year as shares of Concur are down 10% over the past 12 months while shares of NetSuite have doubled.
Given the similar profiles of the company (similarly sized with similar growth rates), I believe there will be a correction over time, with either NetSuite falling in price or Concur rising in price so that eventually the firms will trade in line with each other. The theoretical trade: Going long Concur shares and short NetSuite shares.
The actual trade would look more like this: Purchase 256 shares of Concur at its current price ($39) for a total outflow of $10,000. In addition, I would short 300 shares of NetSuite at its current price ($33) for a total inflow of $10,000. With this pair trade, your inflows equal your outflows at the outset so no cash investment is required. The reason I like this trade: By pairing Concur and NetSuite, an investor would benefit from a market correction that brings the two firms’ multiples more in line. It does not matter whether Concur appreciates or NetSuite depreciates. In addition, no cash is needed upfront to enter into this trade.