Dear Strategic Tech Investor,
Even with the “Trump rally,” this remains what we refer to here as a “stock-pickers market.” That’s because if you’re investing in individual stocks you can’t depend on the rising tide – that Trump rally – to lift all boats. You have to find the right boats – you have to pick the right stocks. In order to pick these market-crushing stocks, you have to find ones with multiple “triggers” – catalysts that are about to light a fire under their shares. Let’s look at it again…
Back on Jan. 31, I recommended you take a look at Ellie Mae Inc. (ELLI). The company operates a loan origination network that connects some 206,000 real estate professionals and lenders. That may not sound like a tech company, but in today’s world, after all, every company is a tech company. Ellie Mae houses that network on The Cloud – and says it wants to automate as much of the loan process as it possibly can.
That portal is Encompass, with which clients can manage nearly every aspect of the loan process – from loan origination and regulatory compliance to customer relationship management and even mobile outreach. No wonder Ellie Mae handles roughly 25% of all home loans today. There are roughly 5,000 mortgage lenders in the United States, so that’s quite an accomplishment. Moreover, the five biggest U.S. banks account for 15% – roughly 40% less volume combined.
Since five weeks or so – Ellie Mae has skyrocketed close to 20%. That absolutely smashes, by fourfold, the Dow Jones Industrial Average’s impressive 5% or so gain. As I see it, Ellie Mae benefited from four identifiable “triggers”…
Trigger 1: After years of moribund management, Ellie Mae appointed Jonathon H. Corr as CEO in 2015. He’s a veteran leader who has surrounded himself with top talent.
Trigger 2: When the Federal Reserve raised interest rates late last year and promised to do so again in 2017, many investors feared that home prices and loan demand would collapse – and shares of Ellie Mae fell 22% right after the Nov. 8 election. Back in late January, we saw that as a setup for a powerful new rally. We were right.
Trigger 3: While the mortgage market is not exactly a double-digit grower, the cloud-based software-as-a-service (SaaS) sector sure is. IDC has forecast that, by the end of next year, the domestic SaaS market will account for at least 27% of the market for enterprise software, with a market value of $50.5 billion. According to Goldman Sachs, the global SaaS market hit $106 billion in 2016, up 21% from 2015. And that’s the place where Ellie Mae now finds itself.
Trigger 4: Ellie Mae is a bona fide growth machine. Last quarter, it posted a 60% gain in earnings on a 46% increase in sales. Profits are rising faster than sales, so profit margins are growing as well. Its user base is growing quickly as well. Back in 2012, Ellie Mae had 60,000 SaaS users. In just four years it more than tripled that number to 206,000 users. Considering that there are roughly 850,000 mortgage professionals, the firm still see plenty of growth ahead.
