- At the beginning of the year we shared an undiscovered gem as our Top Growth Pick for 2021. This smartphone personalization company is growing revenue >100%, very profitable and undervalued.
- The stock almost tripled in a short timeframe, but is now trading >30% below its peak, providing new buying opportunities.
- In this blog post we write an update about the stock. We share why fundamentals remain very strong and reiterate our BUY rating with 247% upside from today.
- Do you want to discover additional multibagger stocks like this one? Don't hesitate to join Insider Opportunities now, because our 20% summer discount will expire next week!
Dear fellow investor,
At the beginning of 2021, Seeking Alpha started a contest named "2021 Marketplace Top Ideas". For this contest, 61 Marketplace service owners including me have shared their best investment idea for 2021.
We decided to pick Zedge (ZDGE), an undiscovered gem which insiders bought heavily in 2020 and the beginning of 2021 and which got picked by our IO Golden Growth Algorithm.
You can re-read our investment thesis of the stock in this blog post.
In short, Zedge is a leading smartphone personalization app for wallpapers, ringtones, widgets, etc. which only recently started to monetize its 35 mln loyal users. Due to their monetization efforts, revenue growth accelerated to a staggering 153% last quarter and new initiatives should continue to push growth going forward as its ARPMAU is still more than 20x below the peer average.
Our first buying recommendation at $7.67 was a big hit as the stock quickly shot higher. Also, we recommended our members to double their position as the stock declined again to $10 in the short term despite amazing numbers being reported. In only a couple of months, the stock shot to a high of $19.90 and reached a temporary #1 in the Marketplace contest.
(Source: Insider Opportunities with Tradingview)
Unfortunately, the stock came under short term pressure after this top and is now trading more than 30% below its highs. Our recommendation is still up 74%, but dropped to #7/61 in the ranking.
How can this be explained? We believe this decline is purely based on momentum. Small caps and many high growth stocks faced weak momentum over the past months as much money flew into "safer" large caps such as the FAANG stocks.
This can lead to significant short term volatility for stocks like Zedge with very low liquidity.
We believe this isn't based on the fundamentals of the stock, because these are still rock solid.
For FY Q3 2021 which ended on April 30, Zedge reported revenue growth of 153% and raised its full-year guidance for a third time to 95-100% growth. We would not be surprised if Zedge would beat these estimates and if management would guide for continuous growth for three reasons:
- Management generally has been very conservative in its guidance.
- Peers such as Snapchat (SNAP) and Pinterest (PINS) have shown very strong advertising spending in their most recent quarter, which should also benefit Zedge.
- Management has been rolling out new monetization initiatives recently, which should enhance growth.
Of course, we are not only interested in revenue growth. At Insider Opportunities, our investment opportunities our primarily selected based on profitability and valuations. That's looking very solid for Zedge as well.
During the last quarter, the company achieved amazing operating margins of 39% and this strong profitability should continue despite increasing investments in future growth.
As a consequence of the recent correction, the valuation became extremely attractive as well. Based on our assumptions (100% and 71% revenue growth for respectively FY 2021 and 2022), the stock's 2022 EV/revenue ratio falls to 5.4x, which is extremely low for such a high-margin, high-growth stock. This undervaluation is also underscored by the very low 10.7x P/FCF ratio for 2022.
Nothing changed with the company over the past months. As such, we maintain our price target of $35. This provides a staggering 247% upside from today's levels!
We expect the stock to bottom at around today's levels and push higher in anticipation of the numbers which will be reported on October 28. If good numbers will be reported, which we fully expect, the stock might double for the remainder of 2021 to reach new all-time highs!
As such, Zedge remains one of our clear favorite investments today.
Your last chance to join at a discount!
Do you want to discover other stocks like Zedge which have the potential to double?
Our Insider Opportunities members have exclusive access to our Current Recommendation List, which currently includes 14 amazing buying opportunities. 10 of our 11 sold positions generated a positive return for our members, including 4 multibaggers (return >100%). We aim to extend this very strong track record with new positions going forward.
(Source: Insider Opportunities)
Don't hesitate to join our community now, as we currently provide you a 20% summer discount which will expire next week! Also, we offer a 14-day FREE trial so you can try it out without any obligations.
Where are you waiting for?
The week at Insider Opportunities
- Tuesday 09/14: Insiders at Breakfast: 38 insider purchases.
- Wednesday 09/15: Insiders at Breakfast: 36 insider purchases.
- Thursday 09/16: Chromadex Position Sold At 33% Profit Due To Increasing Legal Challenges
- Thursday 09/16: Insiders at Breakfast: 40 insider purchases.
- Friday 09/17: Insiders at Breakfast: 39 insider purchases.
- Saturday 09/18: Insiders at Breakfast: 43 insider purchases.
- Sunday 09/19: Weekly Portfolio Update
Analyst's Disclosure: I/we have a beneficial long position in the shares of ZDGE either through stock ownership, options, or other derivatives.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.