![]() ![]() Within our theme, the stock Cloudera (CLDR) has been the strongest performer, with its stock up by about 13% year-to-date as the company agreed to be bought out by private equity firms KKR and Clayton, Dubilier & Rice, for $5.3 billion. Overall, we think this group of stocks remains a solid long-term bet due to multiple factors, including greater digitization of business following Covid-19, higher corporate IT spending following a muted 2020, and also the broader pivot of the software industry to recurring revenue models. Federal Reserve and rising inflation through the Covid-19 re-opening have caused investors to rotate out of high-growth stocks. While the businesses have largely continued to perform well, the anticipation of sooner than expected rate hikes by the U.S. However, the underperformance is linked more to technical and macro factors, rather than fundamentals. The theme has underperformed considerably this year, declining by about -6.5% compared to the Nasdaq-100 which is up by about 13% over the same period. Our theme of Mid-Cap SaaS Stocks includes software stocks that have a market cap of between $2 billion and $10 billion and have grown revenue by 50% or more over the last two years. On the other side, Fastly (FSLY) stock has been the weakest performer, declining by about 55% year-to-date, due to weak Q2 2021 results and also as the company lost business from its once largest customer, ByteDance. Within our theme, Instructure Holdings (INST) a company that provides learning-management systems used at colleges and schools, has been the strongest performer, rising by 20% so far this year (the company went private last March and re-listed once again in July 2021). ![]() Valuations are also looking reasonable, given the correction over the last few months and the high growth rates that most of the companies in the theme are posting. With Covid-19 cases surging once again in the U.S., companies are delaying their return to office plans and this should bode well for software stocks, which stand to benefit from the increasing digitization of business and the remote working trend. We think there are a couple of trends that point to the continued strong performance of the theme. However, the performance picked up a bit over the last week (five trading days), rising by about 4% versus the Nasdaq which was up by about 2%. The theme has underperformed this year, declining by about 9% year-to-date, on an equally weighted basis, compared to the Nasdaq-100 which is up by about 20%. Our theme of Mid-Cap SaaS Stocks screens for software stocks that have a market cap of between $2 billion and $10 billion and have grown revenue by 50% or more over the last two years. ![]()
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