SolarWinds: Buy the Dip? | Follow up on July 31, 2021

 Here is the article. 

My study notes:

1. The tech stock still isn't a bargain. That's even before taking into account any negative outcome from the recent hack.
2. It is still too expensive. I should skip this stock right now. Maybe I can just purchase 20 shares. 

Buy the dip?

Despite SolarWinds' stock price drop of more than 15%, the stock still isn't considered a bargain. It is trading at forward enterprise value-to-sales and price-to-earnings (P/E) ratios of 7.5 and 20, respectively, which suggests the market still expects strong performance over the next many years.

In addition to the unknown consequences of the hack beyond the short term, SolarWinds is also about to face extra uncertainties with significant changes coming for its business. After more than 14 years as CEO, Kevin Thompson will leave SolarWinds on Jan. 4. And during the first half of 2021, the company is planning to spin off its activities with managed service providers (MSP), which represent about 30% of revenue. These MSPs leverage SolarWinds' technology to monitor, manage, and secure the computing environments of over 500,000 businesses around the world. 

SolarWinds is also competing with legacy vendors such as International Business Machines over its on-premises and cloud solutions business. It's also facing intensifying competition with cloud-native high-growth players in this area. For instance, Datadog has been delivering impressive performance over the last several quarters and New Relic is now trying to attract new customers with free offerings. 

Then there is the issue of the company trying to manage a debt load currently totaling $1.48 billion in excess of cash and cash equivalents at the end of the last quarter. In comparison, it generated $332 million of free cash flow over the last 12 months.

Despite this recent dip in SolarWind stock, investors should consider staying on the sidelines right now. The tech stock still isn't a bargain. That's even before taking into account any negative outcome from the recent hack.

My homework:

PE ratio

DataDog - 430

Fireeye - 57.52

SWI 2019 - 18.66

INTC - PE ratio - 9.03 

Bought SWI 100 share at price 16.07, plan to purchase another 100 share in 2 - 3 business days. Purchase another 100 share if there is a big drop in next 3 - 5 business day. SWI is my portfolio with turnaround stock.

I should set stop loss using 5% stop loss and bet $30,000 dollars to get 20% return. That is $6,000 dollars in one day. 

As an equity researcher, I just speculate that there are 160,000,000 dollars bet on SWI in one day. I should be safe if I contribute 3/16000 = 1/ 5000 = 2/ 10,000. 

Follow up 

July 31, 2021

SWI gives out one time dividend $1.5 for one share before August 5, 2021. NABL is separated from SWI stock.