Evaluate a Company

Here we are... putting everything you have learned so far to use. Let's use metrics, business principles, and a longer-term investing strategy to evaluate a company.

The company I have chosen is Docebo and this is a growth company so keep that in mind for holding time and when looking at the metrics. Disclaimer I do own this company, however this does not mean in any way you should buy it, as always do your own research and come up with your own opinion. I will be showing what I looked at, why I bought it, and the risks involved.

Before buying into a company or industry it is imperative to understand what the business does and how they make money. So, when something happens inside the business, or in the world, you can understand how the company is affected. So, quick overview of Docebo's business....

They are a Learning Managment System (LMS) that provides AI powered learning platforms internationally. This means they have software that companies can integrate into their business to help teach employees or customers how to use their software or any other part of the job. You can look up what all of that is if you are interested but it is only important that you understand you must know the business and what would attract you as the investor to buying it.

Why do you think it is underpriced?

Why is your assumption of the stock price better than the markets?

What is this company's advantage?

All of these questions for this company for me were answered in 2 letters... AI. The AI market is booming in 2024 and for the next who knows how long this will be the topic of everyone's discussions on wall street. Not only was Docebo the first generative AI LMS ever, but it also has AI powered content recommendations. These AI incorporations into their systems are not common and I believe are the future of LMS and this company has capitalized on it first with customers such as Amazon and Walmart. 

How does your company make money?

Now that we know what our business does and how they compare against competitors we need to understand how this company makes a profit.  We can use some metrics for this as well as just general research on the company's page and Yahoo Finance.

For Docebo this is Subscription Fees: Where Docebo offers various subscription plans to businesses and organizations, which grant access to its LMS platform. These plans often come with different features, levels of support, and user limits. Customers pay a recurring fee (usually monthly or annually) for continued access to the platform.

In my opinion the best part of this is that your main source of revenue is subscription based. This means you have guaranteed revenue for years to come and customers are essentially locked in. This also makes reoccurring customers more common because not only are their systems the new shiny thing in the market, but they have also already integrated their software into your business and your employees know how to use it. 

You can find what your business does, where they operate, and their goals usually in the beginning of the 10-k. The 10-k is a required filing for public companies that has all of the financial statements, a full business breakdown, customers, and everything you would need for the business. This can also be found on Sec.gov website. Every 10-k is normally different but using the table of contents and ctrl f you can generally find everything you need pretty quickly. 

What to Look For

Mergers and Acquisitions - Is your company buying and taking over other companies to help them expand?

Locations of Operation - Is your company based in the US? Do they have a lot of overseas locations and/or business? I did a research report on Texas Instruments (yes, the calculators) and they receive about 19% of their revenue from China. This can be dangerous because this means this company is not only in danger to conflicts in the US, but also with US relations to China, and other world conflicts. So, knowing where your company operates can help you understand where they make money and how they are affected by world politics. 

For a company like Docebo that uses software to help companies I looked at what their software could be integrated into, what it can pair with, and e-commerce capabilities. In Docebos case they are easily integrated with One/Google Drive and Microsoft systems while competitors are not integrated in as many software’s.

Management - One thing they taught us in Smif (go to about page for info) is how important a CEO and their visions are to a company. Just take a glimpse at the CEO and his experience, his ideas for the future, and his plans along with the Board of Directors.

Metrics and KPI's

Depending on the company depends on the metrics you should prioritize as well as what Key performance indicators (KPIs) to look at. When looking at any company on say Yahoo Finance they will always show you the basic metrics (Common and broader metrics but still arguably the most important).

These sites will usually show the same metrics no matter the company, so it is up to you to find the metrics most important for your company.

Click the video ⬇️

KPI's

KPIs, also known as key performance indicators, are metrics and stats used to measure a very specific metric inside a certain industry. These are very simple to find, just type in "KPIs for 'insert sector'." Just like every other metric you can look up the metric and compare it to different companies in the same sector.

Some KPI's for Docebo include...

  • User Lifetime Value - One of the best KPIs is user retention, or user lifetime value. If you can retain customers, you will be able to generate revenue. 

  • Customer Experience - How well are customers navigating the site? Do they have trouble understanding the uses and information? Do they know what actions are expected of them now?

  • Mean time to repair - When servers go down how quickly are they replaced with other servers and how long until the broken ones are up and running again.
  • Mean time to detect - When there is a break in, or security risk, how quickly is it detected and what processes does your company have in place.
  • Flow efficiency - The amount of time you are working vs waiting. Measuring things such as loading, and queue times can help you minimize waiting time.

Final Thoughts

When evaluating a company you might want to invest in, you must consider all of these factors before investing. Make sure you

  1. Understand the business

Understanding what your business does is imperative for any type of investing. To understand why the stock goes up or down you must understand how they are affected by media trends, news, and reports.

  2. How your company makes money 

You must know how your company generates revenue, and this can be found in the 10-k or on the internet

  3. Growth

Do you see expected growth in the future? Was there consistent growth in the past? Or did you see something that makes you believe profits and revenues will or continue to rise.

  4. Compare

Compare your company with other similar companies and see how it stacks up. What are the competitive advantages? Do they have a monopoly? 

You can never fully eliminate risk, only reduce it through research. The more information you have on a company, the better you will feel about investing into it, and the less likely you are to pull out at the wrong time. Remember, if you found a business with great principles and good metrics, do not sell or get all worked up the first time the stock goes below your buy price. Have confidence in yourself and your ability.