FYI | Sep 15 2020
By Peter Switzer, Switzer Report
Will my ZEET stocks be winners just like the WAAAX stocks?
Back on June 1, I gave birth to a group of hi-tech stocks, which I said could end up being the WAAAX stocks of the future. I gave them the nickname ZEET stocks and in recent times I’ve had a number of people ask me how I thought they were going.
In Thursday’s Switzer Report, Maureen Jordan looked at my views on two of the ZEETs (Zip and Tyro) and the view of Tribeca Investment Partners’ Jun Bei Liu, who is also a believer in those stocks going forward.
Today, I want to look at all four ZEET stocks (Zip, Elmo, EML and Tyro) with a special focus on EML Payments ((EML)) and Elmo Software ((ELO)), which I think are likely to benefit from the eventual and gradual reopening of the economy, hopefully as early as possible in 2021. Clearly, the arrival of a vaccine in early January, as cautiously predicted by Health Minister Greg Hunt, would be a huge help for our economic reopening and the share prices of ELO, EML, Zip Co (Z1P)) and Tyro Payments ((TYR)).
From the outset, let me make it clear that few stocks will start to rise, and keep rising, relentlessly. The WAAAX stocks (Wisetech, Afterpay, Altium, Appen and Xero) have had their ups and downs, although over time they have enjoyed an upward trend.
Let’s look at Afterpay to prove my point.
APT (One month)
Note the ups and downs over time but over the month we can see it has been green on the screen, not red. A month ago it was just under $74. Last Friday, it was a tad over.
Now let’s take a longer run view of this stock and see if it has delivered.
APT (3 years)
In June 2017, APT was a $2.95 stock. Now it’s a $73 stock. Wisetech (WTC) was a $4 stock in April 2016 and now is just under $28, but over the past year it had fallen from $35 to $28! As I said, good stocks don’t continuously rise.
In my June 1 story, when I suggested that the ZEET stocks could become like the WAAAX stocks of the past few years, this is what I opened with: “The outstanding revelation of the past bull market was the importance and ascendency of the tech stocks. In the US, the post-GFC boom in stocks underlined how crucial the FAANG (Facebook, Amazon, Apple, Netflix and Google, i.e. Alphabet) stocks have been in driving US market indices higher.”
This chart of the Nasdaq screams out how significant these companies are (especially when you throw in Microsoft) in explaining why this hi-tech index is actually up for the year.
Out tech stocks are not as powerful for the S&P/ASX 200 Index as the FAANG stocks are for the S&P 500 but they are becoming more significant by the week. Nowadays we have an All Tech Index, with Afterpay topping the show. See how it has roared back since the Coronavirus came to town.
Right now, Z1P is facing some headwinds from rivals. PayPal, as well as NAB and CBA with their 0% credit cards, are trying to eat the ‘lunch’ that Zip has been sharing with Afterpay, as first-movers, when it comes to the buy now pay later (BNPL) space in retail. This six month chart sums it up nicely.
Z1P (6 months)
Going into June 1, Z1P was a $3.75 stock. It’s now $5.72 so I’m happy with that progress, although I was happier when it was $9.65. However, as I’ve argued, share prices don’t go up all the time.
When it comes to EML Payments, this is a business that would be frustrated by the Victorian lockdown as it’s in gift card and preloaded cards for casinos and so on. As they have customers worldwide they have met a few challenges, but the Victorian surprise would’ve been a kick-in-the-butt for the company.
EML (6 months)
Henry Jennings of Marcus Today recently gave us his view on the stock in the AFR on September 4. “We like this stock. I like this stock, and it tends to run with the whole buy now, pay later sector, because it’s one of those fintechs…It is complicated. It is a complicated beast, preloaded cards in any fashion…and the big run previously was in gaming, because they had this deal in the US with Bet365 so you could preload your gaming cards, that didn’t get too much of a mention in the growth story and all those buzzwords that we’re talking about. I think this is a buy. It’s not a strong buy, but it is a buy, I think at these levels.”
On June 1, EML was a $3.72 stock. Now it’s $2.83. I blame Victoria for a lot of that fall but note how it rocketed out of the March 23 low point of the Coronavirus crash when it hit $1.33, then spiked to $3.99.
To Elmo Software, and FNArena’s survey of analysts gives me plenty of hope. These experts like the company, with a target of $9 from a current price of $4.83, which suggests an 86.3% upside! Gotta hope these guys are even half or a quarter right!
Michael Wayne of Medallion Financial was the first to alert me to this company’s potential and I asked him for his latest view. This is what he said: “Nothing’s really changed in the last couple of weeks. There hasn’t been any news flow and the long-term thesis remains intact in our view.”
Technically, it has been trading poorly, however, the share price is approaching the bottom end of its two-year trading range and could well find some support and bounce.
Only 13 days ago, he was still on board with the company and these were his main points: “The market didn’t seem to like the recent results too much despite the fact they were basically pre-guided and in-line with expectations. Guidance had already been re-instated to between $55m and $57m, while EBITDA guidance had been upgraded to between negative $2.5m and negative $4.5m.”
His analysis of the positives from the recent report said they easily outweighed the negatives. “From speaking with management, the indication has been that the business has experienced a slight deferral in purchasing decisions by many prospects,” he said. “However, broadly speaking the sense is that COVID-19 has helped to accelerate businesses migrating to the cloud. This has helped to partially offset some weakness as businesses with old school legacy payroll systems have been forced to modernise to facilitate staff working from home.”
A few weeks back I interviewed Danny Lessem, the CEO of Elmo. He came across as someone who was confident about his company’s potential.
My gut feeling is Elmo is a keeper and has long run potential.
Finally to Tyro, which is my favourite among the ZEET stocks. I own all four stocks, so I have skin in the game, but Tyro will benefit from the reopening of Victoria when hospitality dollars will be released again. That’s when Tyro’s EFTPOS machines come into their own.
Tyro (1 year)
I don’t know if ZEET stocks will ever emulate the performance of the WAAAX stocks but it’s my guess that all four have considerable potential. That won’t necessarily materialise overnight.
One thing I like was that Jun Bei Liu, in our recent webinar, seemed to like most of these companies as future stars. And she’s not easily impressed.
I recently interviewed Tyro’s CEO, Robbie Cooke, and you couldn’t help but be impressed by the company’s leader and what lies out there for this operation, which also has a banking licence.
Right now, the analysts think this company has 8.2% upside, but I suspect that they’re being a little too conservative. Their target price is $3.48 but pre-COVID-19 it hit a peak of $4.49. I think this is a level that’s well within this company’s grasp again, when a vaccine and a new kind of normalcy happens.
Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.
Content included in this article is not by association the view of FNArena (see our disclaimer).
Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.
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