C3.ai 15,52 +0,34 +2,24% is a company that sells enterprise systems with predictive analytics capabilities. It has four main packages which the company sells to its customers. A CRM system for a wide variety of industries such as telecom and healthcare. A low code Algorithm designer, which is a tool that enables customers to design algorithms without too much coding. C3 suite, which provides the tools to develop whole enterprise systems (ERP). Lastly, it has applications that can be integrated within this ERP, such as a fraud detection system, a money management system, energy management and 16 other applications. Founded in 2009 by Thomas Siebel, initially to provide enterprise software to the energy management sector. Thomas previously was founder and CEO of Siebel Systems, which later on was sold to Oracle in 2005. Now he is still the current chairman and CEO of C3.ai.
There are many big corporations using the services of C3.ai, such as Shell and 3M. The company touches a market that is predicted to be worth over 600 billion USD in 2023. It had its IPO quite recently, on 9 December 2020. C3.ai has a market cap of 6 billion USD, belonging to the small cap companies. Currently it has a share price of approximately 60 USD with a beta of 1.79 compared to the NASDAQ index, which is rather high. Many insider selling has happened in Q1 and Q2: in total 810 million USD worth in shares was sold. However, this can be explained by the fact that at that time, one share was 130 to 170 USD worth which is way too much for its current performance.
Looking at the management team, this consists of 6 people, each experienced in the current field of operations, as many came from Oracle or Siebel Systems.
Seeing the income statement, C3.ai does not make any profits yet. However, the revenues grow a lot each year. Comparing 2020 and 2021 results, using their annual report, the company increased its revenues with 26 million USD from 157 million to 183 million. It still invests heavily in R&D, approximately 69 million USD in 2021. Additionally, it invests a lot in marketing, approximately 97 million USD in 2021. Looking at the costs and revenues, the company could already be profitable, however, due to the high marketing and R&D investments, it isn’t yet, showing that it has a rapid growth mindset as a company.
Next, looking at the balance sheet of the company, it becomes interesting. A few noticeable things are: its cash and equivalents almost quadrupled, while not making any profits yet. This clearly indicates that it has borrowed or issued shares. Its short term investments also more than quadrupled, from 211 million USD to approximately 978 million USD. This can potentially be dangerous as it adds a lot of short term obligations to the company. Additionally, its accounts receivable went from 31 million to 66 million USD approximately, meaning an average days sales outstanding of 130: it clearly has some issues with obtaining the money from customers. Its accounts payable also has increased quite a bit, from 4 million to 12 million USD, having an average days accounts payable outstanding of 24. Lastly, it had a very high additional paid in capital of 1.4 billion USD in 2021, because of the IPO.
Lastly, a few noticeable indicators within the statements of cash flows: C3.ai had a whopping 22 million USD stock based compensation expense in 2021. The investing cashflows shows it invested heavily in money markets, US Treasury securities, etc. for in total 1.15 billion USD in 2021. Looking at some key ratio’s, as the company has made no profits yet, many ratio’s such as P/E, ROA, ROE, ROI are negative. The debt/equity ratio is very low and positive, with a score of 0.12. It has a quick ratio of 1.24 which is above 1, meaning it can easily pay off its current liabilities.
Doing some technical analysis, by using the MACD, it is clear that the share now is in a bearish trend. Looking at the relative strength index, which is approximately 40, it is not overbought, rather slightly oversold.
To conclude, a lot of insider selling has happened in the last two quarters, which makes me wonder what caused it. Does the management not believe in the company’s concept anymore? That of course would be a bad sign. Or did they themselves believe the share price of approximately 130-170 USD was way too high? Looking at the financial information, a few months ago C3.ai was still heavily overvalued, so personally I think the latter is the true reason why they sold. It still makes a loss, however this can quickly change as the losses are becoming smaller and the balance sheet only better, which are both good signs. It had a big stock composition last year. I question myself if they are just trying to get as much money out of this concept now or if this was a fair increase. It has an extremely low debt/equity ratio and a good, above 1, quick ratio and can easily pay off its current liabilities. Doing a small technical analysis this also looks rather positive, so all in all a good moment to buy is near.
Max Ritt has over 5 years of experience with trading and analyzing ETFs and shares. Currently, he is chief investment officer of De Zilveren Rijder at Nyenrode Business University, while doing his master studies there. Recently he started the MaxRitt.nl webpage where he blogs mainly about investing.
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