RealPage (RP) was one of 30 stocks that hit a screen for outsized quality growth, one of the smaller more interesting names on a list that included market leaders like Amazon (AMZN) and Salesforce.com (CRM).RP offers a value-added solution that is meaningfully disruptive to a large industry, and has the ability to sustain above-average growth for a very long period of time.Its niche nature also makes it a potentially attractive M&A candidate as strength in Multi-Family housing starts increases its customer base, and it is also a EBITDA margin expansion candidate.
The $1.73B software company provides solutions to the rental housing industry such as asset optimization, leading/marketing, resident services, and property management.Its total addressable market includes 20M “Prospects”, 4.6M “Vendors”, 80K “Owners/Managers”, and 100M “Residents.”RP provides a value-added software solution that drives higher revenues, lower credit/property risk, and expense reduction for owners/managers, and convenience solutions to residents such as paying online, requesting services online, and other engagement functions.RP projects addressable units at 5X current levels, RPU at 6X, and TAM at 28X in terms of ACV (Annual Customer Value).RP also has the ability not only to sell more units and increase penetration, but also expand into new markets such as Senior Living & Student Living.
RP shares trade 24.6X Earnings, 3.56X Sales, 5.15X Book and 26.6X FCF with a strong balance sheet.RP has seen consistent revenue growth and with 88%+ of revenues subscriptions, a highly predictable revenue stream, and believed to be in the early innings of a large TAM.Annual Customer Value (ACV) is utilized as a metric for bookings which is driven by Units & RPU, and from 2010 to 2014 ACV has shown a CAGR of 18%.RP is seeing accelerating Y/Y revenue growth, 7.3% in 2014, 15.8% in 2015, and projected at 21.6% in 2016 and then normalizing at 14.7% in 2017.EPS jumped 41% in 2015, projected +31.5% in 2016, and +21.9% in 2017.Gross Margins have steadily declined, set to be 62.5% in 2016 after being as high as 66% in 2012, so any stabilization and potential recovery in margins can add to the positive outlook.On the other hand, EBITDA margins have risen since 2014 and projected to hit 22.6% in 2017, and reaching 30% is attainable according to management’s long term goals.At 2.6X FY17 EV/Sales, RealPage is a compelling value for a growth stock.RP also has been active with small tuck-in acquisitions including NWP Services for $68M and AssetEye for $4.8M in 2016.Comparable valuation is tricky with RP due to its niche nature, most of its competitors, such as Yardi Systems, are private without available financial data.
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