Concur Technologies: Bull vs. Bear
Reasons for Optimism
Stocks Hitting New Highs
Back on June 4 (over a month ago), I ended my Cabot Wealth Advisory
column with a recommendation for Concur Technologies, writing the
"Concur Technologies (
) has a great chart, indicating that growing numbers of investors
are becoming aware of the stock, learning about the company's
business and investing in it because they think the future is
"If you're a user, I don't need to tell you about it.
"If you're a user, you may already be an investor in the company!
"But if you're not, here's what you should know.
"In 19 years, Concur has grown to become the world's leading
provider of integrated travel and expense management solutions.
"It has over 15,000 corporate clients with more than 15 million
individual users in more than 100 countries.
"And it's still growing at a good clip, with revenues up 28% in its
fiscal second quarter.
"That's all good, but last week the story got even better.
"Last week, the company announced it had been selected by the U.S.
General Services Administration (GSA) to manage online travel
booking, authorizations and voucher processing for all Federal
Agencies. That's huge news, given that the GSA has about three
million civilian employees.
"The stock spiked higher on big volume on the news, and broke out
to a new high two days later as the broad market (thanks to Spain)
rallied to provide a supportive environment.
"That means the stock moves to near the top of my watch list. If it
does well, I may write about it again.
"But if you really want to be assured of continuing coverage of the
stock for as long as it remains attractive, I recommend you take a
Cabot Top Ten Trader
, which recommended the stock a month ago and continues to follow
Well, today I'm writing about Concur again, but not because it's
done well--though it has; it's up 2.6% while the S&P 500 is up
I'm writing about it because among the responses to that column
were two that stood out.
The first was bullish on the stock, yet distracted by insignificant
details, writing this:
"Your article on this stock was very interesting and I am going to
take a serious look at the stock.
"There are two points in the article that deserve comment.
"First, the assumption that a contract with GSA is great news. Yes,
there will be plenty of business. However it may cut down the
profit margins, rather than raise them. How so? Contrary to popular
opinion, not all elements of the government are the same. While
Congress regularly encourages contracts in the defense industry,
which have generous terms for the contractor such as the no-bid
contracts given to Cheney's company, most contracts are very
competitive. Unfortunately, the politics of the situation give the
impression that all contracts are wasteful. (That goes along with
the totally infantile belief that government is a failure unless I
get 100% of what I want.) So let's be clear here, a contract with
the notoriously penny-pinching GSA is not going to be generous.
Sometimes those decisions are pound foolish, but when the corporate
culture is low cost forever, such things happen.
"Second, when I retired as a DOD civilian in 2001, there were about
2 million civilian employees in all branches of the federal
government. It has not grown since then, and certainly not by 50%.
So where would the 3 million figure come from? By adding in the
number of those in uniform, i.e., the military? I strongly suspect
that is what the press release about the contract with GSA said. If
not, it was wrong.
"We have enough trouble with misperceptions about the federal
government without a noted publisher adding to the lies circulating
out there. By the way, about half of the federal work force is in
The second correspondent was bearish on the stock and wrote this:
"You must be kidding. I have followed this company for several
years and in my opinion this company is run more for the benefit of
the officers and directors than I personally have found for any
other publicly traded company in my universe. Up until 2010, the
company reported earnings on a GAAP basis and earned .50 for the
year. In 2009, the company reported .38 and raised cash by selling
stock in the company to Am Express. At that time, CNQR had no
long-term debt. The following year they issued bonds and raised
around 350M. Interest wiped out GAAP earnings so they began
reporting and issuing guidance on a non-GAAP basis as GAAP earnings
dropped to a negative .20. As non-GAAP earnings dropped, they
became creative and started reporting non-GAAP, pre-tax earnings.
Who else reports earnings in this manner? Non-GAAP for 2009 was
.72, 2010 was .76 and 2011 was .59 while revenues grew 20%+ per
year. They found that by greatly increasing stock-based
compensation they could increase their non-GAAP pre tax earnings.
In 2009, stock-based compensation amounted to .23 per share. In
2010, it increased to .37 and in 2011, it jumped to a whopping .65
per share (10% of revenues). The Chairman of the Board and the CEO
have both sold stock over the last three years netting over 25M
each. Not bad for a company not making any money.
"The balance sheet shows intangible assets of $115M and goodwill of
another 281M. There is also another 28M in acquisition-related
contingent consideration on the balance sheet. Combined this equals
around 38% of assets. Back out debt and inventories and you have
practically nothing left. Is this company's stock really worth $65?
Where can it go from here? Has someone forgot his homework?
"This may be the case when a stock's chart looks appealing, but any
type of fundamental analyses says you need to rethink the
recommendation. CNQR is presently selling at 45 x 2012 cash flow.
When do you anticipate they will actually report any GAAP earnings?
You can buy Cerner (
) for about the same price!
"I have been a subscriber for many years to various Cabot
publications. Usually you are right on with your advice. I hope you
will rethink this particular recommendation and step up and let
your readers know you may have made a mistake."
Senior Vice President, Investments (A really big bank)
The first correspondent has my apologies with regard to the numbers
of GSA employees. When I wrote the original recommendation, I had
no success finding a reliable source for any different number, so I
used the three million found online. I have no confidence in that
number, but it doesn't affect my analysis anyway.
Similarly, the price GSA pays for Concur's services doesn't bother
me either. I trust that management has decided the improved volume
will be worth it, even if margins shrink a bit.
What matters to me is the way the stock reacted to the news, and
the way the stock is still acting today!
You see, I learned long ago that the stock market is smarter than
me. It's also smarter than those two correspondents above and yes,
smarter than you, too. Each and every one of us is wrong from time
to time, but the market is never wrong. And the market is pushing
Because growing numbers of investors are having increasingly
positive opinions about the company's prospects!
Some of these investors are discovering the company for the first
time, while some have been following it for longer, and are
impressed with its recent rapid growth--at 28% in the latest
quarter, this growth is accelerating! In sum, the buyers are
in control, overpowering sellers, and thus creating a long-term
uptrend in the stock's price.
But what about the arguments of my second correspondent, who knows
much more than me about the firm's metrics?
Reading them through, I'm impressed. If I were a novice investor,
I'd say, "This guy knows what he's talking about. I'm not touching
that stock with a ten-foot pole."
But I'm not a novice, and I say those numbers don't matter--because
the stock tells me they don't matter.
Sure, those numbers matter if you're intent on finding undervalued
stocks and holding long-term until they reach fair value.
But CNQR was recommended by Cabot Top Ten Trader, and subscribers
to that publication don't want slow long-term growth. They want
fast growth! They want stocks with a high probability of going up
in the weeks ahead, and whether these stocks have strong or weak
balance sheets and high or low valuations don't bother them.
In fact, these things don't bother a lot of investors, which is why
great growth stocks are usually viewed as too expensive by
Whether it's Amazon.com, eBay, and Crox in their heydays or Ulta
Salon, Michael Kors, Mellanox, Cirrus Logic today, it's not
valuation that matters, it's growth potential and upside momentum
The caveat, of course, is that once momentum fades, it's important
that you sell these stocks. Projections of growth and dreams of
glory are all well and good as long as the stock is going up, but
as I said, the market is always right, so when a growth stock turns
down, my opinion of it turns down, too.
By the way,
, recommended as an alternative by my second correspondent, looks
good, too, but it's more mature than Concur and more widely
respected, which means it has less upside potential and is more
likely to be a slower grower.
Another query--more timeless-- from a subscriber was this:
"Could you tell me if there are some differences between those
terms you employ to comment on your recommendations such as
weakness, decline, pullback, dip and correction. Is it the safest
way to buy a stock making a new historical high?"
--G.S. Hollywood, Florida
"As to the terms used, all refer to price action. Some are
synonymous; sometimes there is a distinction.
"'Weakness' is imprecise, but generally reflects performance over a
longer time period, which is not bad, but is at least lacking vigor
if not actually losing ground.
"'Decline' is simply loss of price over a period of time. It could
be a day; it could be a decade.
"'Pullback' is a decline in the context of an uptrend over a longer
time period. A pullback generally lasts a matter of days or a week
"'Dip' is similar, though frequently over a shorter time period.
And it is not necessarily in the context of an uptrend. There may
be no obvious trend.
"'Correction' is similar to pullback, though usually over a longer
time period, as long as 13 weeks in our book.
"As for stocks hitting new highs, growth-seeking investors very
much like stocks that have the power and sponsorship that enables
them to hit new highs. Growth investors like it best when they are
able to buy these stocks at the end of a classic correction.
Generally, the briefer the correction, the better--because the odds
are greater that the uptrend is intact.
"However, a very long correction that builds a solid base can be a
launching pad for a fine advance. 'The bigger the base, the bigger
the move.' is a truism. Trouble is, sometimes the move is down, and
the longer the base, the lower the odds that the uptrend remains
"Hope that helps!"
Yours in pursuit of wisdom and wealth,
Cabot Wealth Advisory