Slack's First Earnings Report Anticlimactic, But I Still Think It's A Buy

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Includes: AVAV, BYND, CLDR, CRM, DOMO, KTOS, MGM, PLAN, RTN, SMAR, SPLK, UTX, WORK
by: David H. Lerner
Summary

Slack is projecting "only" a +50% revenue growth pace going forward. That's quite a step down from the 67% growth of this earnings report.

To my mind, WORK is "the poster boy" for a new class of tech.

I say buy CRM on the sell-off yesterday. It might fall further so treat this as a speculation (the way I define it).

As far as the merger announcement between United Technologies and Raytheon, I'm not a buyer of either. The names that I do want to talk about are Kratos and AeroVironment.

Slack IPO a Go?

Slack (NYSE:WORK) is projecting "only" a +50% revenue growth pace going forward. That's quite a step down from the 67% growth of this earnings report. Slack is the most interesting IPO so far in 2019 to me. Slack is hugely popular among those using it, I believe in its growth profile. All fast growing high tech names "Sandbag" forward guidance to temper the wild imaginations that analysts have. So I bet the forward guidance will surprise to the upside for its first earnings report as a public company next quarter. We now have a level to trade against and that is a PE ratio of 50 times earnings. If we can get comfortably below that level - 20%-25% - I think that would make it an interesting speculation. Remember that Slack is not an IPO. No new stock will be offered to the public, and there won't be an IPO lock-up either. Since there will be no i-bank promoting the shares and all the insiders can sell at once, we may well get a chance to buy Slack at a discount. To my mind, WORK is "the poster boy" for a new class of tech; that is the "Social Network" business app. It joins Smartsheet (NYSE:SMAR) and Anaplan (NYSE:PLAN) as using the social construct to supercharge worker productivity. Strictly speaking, Google business apps like Google Docs have this collaborative element as well, but this new generation takes it to another level. In any case, please remember the 12th commandment, price matters. You can have a fantastic company that executes perfectly, that is growing exponentially, but if the value is already in the price, it's a bad stock. So I say buy WORK but at the right price. I am counting on a sloppy few days starting at the opening June 20. Perhaps the Fed meeting where I predict the market will be less than happy with Powell's statement. Just to put a bow on this, I say buy but please be disciplined about it.

What to do about yesterday's merger announcements

Salesforce (NYSE:CRM) announces the purchase of Tableau (NYSE:DATA) for an admittedly hefty price. DATA started as a traditional software provider that moved to the cloud/SaaS model. CRM was a cloud-first tech and, in fact, the first mega-cap SaaS success. I believe that CRM will take DATA and supercharge its cloud capability. I think CRM will help DATA to defend and extend its penetration in the corporate world. I say buy CRM on the sell-off yesterday. It might fall further so treat this as a speculation (the way I define it). I also firmly believe there is room for Cloudera (NYSE:CLDR), Splunk (NASDAQ:SPLK), and Domo (NASDAQ:DOMO), I would buy them on weakness as well.

As far as the merger announcement between United Technologies (NYSE:UTX) and Raytheon (NYSE:RTN), I'm not a buyer of either. The names that I do want to talk about are Kratos (NASDAQ:KTOS) and AeroVironment (NASDAQ:AVAV). The future of military aviation is the drone sector. I love KTOS as the little company that could. I think the CEO is a dynamo. They announced a working prototype of the "Loyal Wingman" before Boeing (NYSE:BA) announced the purchase of a startup in Australia that had a model of one on a stand. The "Loyal Wingman" is the technology no one is talking about but has the ability to revolutionize "winged" kinetic incursion into contested enemy territory. I say winged and not manned because in the not too distant future, fighter/bombers may not be manned at all. That is where AVAV comes in, they are one of the top drone builders for the military, they also have the good sense to partner with KTOS on weaponizing drones. The concept of the Loyal Wingman is that it partners with a manned fighter and provides protective functionality of a wingman that never leaves the manned fighter's side. Imagine the next step where there is a swarm of "wingmen" released in time of the attack and form a shield to intercept hostile enemy fire. No one is talking about that now, but it's the next logical step and I bet KTOS is working on it. I would buy KTOS and AVAV. I would also be a buyer of Boeing on the strength of its commercial division with the defense part as the cherry on top.

I Was Beyond Wrong

I believed and still believe that Beyond Meat (NASDAQ:BYND) was overpriced at $40 and it went exponentially higher. I was so excited by the IPO and wanted to get behind it, but it got away from me. That's okay, again, the 12th commandment, PRICE MATTERS. Maybe BYND is worth more than $40 and I was overly conservative, it is certainly not worth $160-$170. It's now down 11% in the pre-market, I still wouldn't touch it and you shouldn't either.

Insiders

MGM Resorts (NYSE:MGM) insider buys 75 million dollars in shares. I am not saying you should buy, but keep an eye on this one. I don't know the hotel/casino space enough to give a recommendation, but such a big purchase makes me sit up and take notice.

Trim, trim, trim

Please start trimming positions with the goal of building back up your cash. Work toward the 25% to 35% cash cache goal. I described trimming in yesterday's missive. It is better to start selling as the market rises in a disciplined way than to panic sell while the market is dropping like a stone. Yes, the market will drop sharply, be prepared.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.