Stock (Symbol) |
Ultimate Software (ULTI) |
Stock Price |
$196 |
Sector |
| Technology |
Data is as of |
| August 8, 2017 |
Expected to Report |
| Oct 30 |
Company Description |
 ULTI is a cloud provider of people management solutions, referred to as human capital management (HCM). UltiPro product suite (UltiPro) is engaging solution that has human resources (HR), payroll, and benefits management and includes global people management, available in approximately 10 languages with over 35 country-specific localizations. Source: Thomson Financial |
Sharek’s Take |
 Last year (2016 Q4), HR software provider Ultimate Software (ULTI) lowered guidance due to a hiring spree the company made to get ready for the company’s next chapter of growth — larger companies. Two qtrs ago staff rose to 3800 from 3055 a year prior. The market (myself included) accepted the spend-to-grow idea and the company went on to deliver 10% and 3% profit growth the next 2 qtrs. ULTI was considered to be a 23% grower, and has been rewarded with a P/E in the 60s because of it. Last qtr the company lowered guidance again and this time blamed needing more time to get bigger deals. It delivered 22% profit growth last qtr (good) but now Estimates for the next 2 qtrs fell to 13% and 7% profit growth. My question is this: Is ULTI now on Workday’s turf? Workday is providing the HR and also business accounting software for big companies like Amazon, Bank of America and Netflix. So maybe ULTI has hired extra staff to get bigger deals, when that’s Workday’s space and the software could be better? I haven’t used either software, so I’m not implying that, this is just a thought. ULTI has had profit growth the past four qtrs of 13%, 10%, 3% and 22% with Estimates of 13%, 7%, 23% and 16% for the next four qtrs. The company has warned twice in less than a year and yet the stock is still beloved by Wall Street as it carries a 53 P/E. ULTI stock dropped from $227 to $200 after earnings, but I feel it cold totally lose its charm if it warns a third time. I’m taking my Fair Value down to a reasonable 35x earnings, which equates to $124 this year and $154 next year. With the stock just under $200 now that’s a long way down. Today I will move to the sidelines on ULTI, and sell the stock from the Growth Portfolio. I like still the company and will keep the stock on my radar with the hopes of buying back later. |
One Year Chart |
 Wow, these numbers along the bottom don’t look great. Great is what you expect when a stock has a P/E of 53. I also notice this stock is down from a year-ago. In a year where tech stocks like this have soared — software included. Management also took down the estimates of recurring revenue growth from 25% to 22%. 2017 profit estimates got chopped from $3.98 to $3.53 and 2018’s from $4.93 to $4.39. Wow! |
 With a Fair Value of 35 times earnings, that’s a price of just $124 a share. What worries me is if the company delivers another warning two qtrs from now (that’s the trend) the stock could drop big time. |
Bottom Line |
 I feel there is some smart money in Ultimate Software stock. These managers saw the stock rising and profits growing rapidly, then climbed aboard. And held. Do note the profit growth rate of 11% is skewed from a big qtr ULTI had in 2007 that pushed profits up a bunch that year. But with 19% profit growth this year, and expectations for 12% growth this year, I no longer feel this stock is deserving of a P/E in the 50s or 60s. Thus I will move to the sidelines on ULTI and sell it from the Growth Portfolio. I like the company a lot, and will keep the stock on the radar, with the hopes of buying back in later. |
Power Rankings |
Growth Stock Portfolio
N/AAggressive Growth Portfolio N/AConservative Stock Portfolio N/A |
