Deep Dive: Thoughtworks Holdings, Inc. ($TWKS)

 Thoughtworks Holdings, Inc. ($TWKS)


Background:

Thoughtworks is a company in the Technology sector and operates in the Information Technology Sector. The company provides technology consultancy services. Thoughtworks has been around since the 1990s, but has just recently went public last year. The company doesn't have much of a customer base, but its main ones are Cielo Inc., Deere & Co, and Ritchie Bros Auctioneers. Using the Bloomberg 5 year default probability, we can see that the company has about a 5% chance to default. Thoughtworks is trading way below its IPO price, and is down about 70% this year. However Analysts are jumping all over this one and are claiming to see a double of investment on todays price. 


Analysts Recommendation:

According to Bloomberg, this company has 8 buy ratings and 3 hold ratings. The implied upside is 82.7% with a target price of $15.22. The stock is currently trading at $8.33 (price is from the close of the market today).  Moody's was the most recent to come out with a report on the company. They upgraded the bond rating from Ba3 to B1, which is a solid increase. The bond remains in the "junk" category. However, we are seeing some deleveraging and some increase in the performance. The demand for IT continues to remain very strong, so Moody's sees the company strengthening cash flows and lowering leverage. 


Technical Analysis:

Thoughtworks may be at a prime for buying right now. The company is on the verge of being oversold (according to the RSI). This is how a lot of people turn to look for entry points into the stock. It was one of the main components that Warren Buffet used to find entry points into an investment. The RSI is at 31.08 right now, and the overbought status is given for anything 30 or below. 


Financial Overview:

The company has seen a major dip in profitability this year. However, they have a very valid reason in to why the Selling, General, and Administrative expenses are so high. The main reason behind the high expenses are all the IPO costs they are settling. This is causing a major havoc on its income and other metrics. The main focus for this stock has to be the growth though. Thoughtworks is doing over $1.2B in revenue a year. They are doing a really solid job on diversifying their customer base, and look to continue this growth. The upcoming earnings report on November 14 is going to tell us a lot about where the company stands. The margins are expected to jump back up and profitability may jump back in on this one. 


Conclusion:

In conclusion, there is a lot of upside with this company. I love the customer base they have already established, especially with Deere & Co doing business with them. The growth is the name of the story with this one, and I think once all the IPO costs get settled, we will see a strength of a earnings come back up. I personally want to see them grow customer base a little bit. However, with $1.5B in revenue expected, they are coming up with some retention, as long as some growth. I think I may start a small position in this one, however I am going to dive more into the moat a little bit to get some further explanation on the business model.



*Information from Bloomberg, Yahoo Finance. Moody's


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