I invested in Cloudera back on August 2 for $6.56/share, let me take you through some of my thought process.
I’ve always been more interested value investment; I tend to shy away from flashy growth opportunities in favor for undervalued companies with low multiples relative to the market segment. Cloudera, a young technology company that is yet to be profitable, doesn’t traditionally fit in to value yet I found it to be a worth purchasing for many of the same reasons.
I keep an eye out for stocks that have a poor annual performance, hoping to find companies that have been beaten down to cheap levels while they’re long-term value did not change. I believe Cloudera is one such company. I was curious if the 67% drop from the 52-week high from $20.18 to $6.56 was based more a true decrease in intrinsic value or more based an overreaction to factors that have little effect on long-term outlook.
Part of the reason for Cloudera’s decline is because of the extreme expensives and the sudden leave of the CEO Tom Reilly. However high expenses for a developing technology didn’t fully explain the drop and included the one time expense of acquiring Hortonworks. The departure of the CEO and missing expected revenue by less than 1% (yet actual EPS were -$0.13 compared to an expected -$0.23) caused the stock to drop over 40% in a single day. I believed the marketed panicked, believing that there must be a hidden, catastrophic reason for the CEO to leave. I saw it as an overreaction.
At this point, Cloudera presented a company with huge potential, a front runner in cloud based data analytics that was trading for a Price/Sales ratio of 3. After doing more investigation into the direction of the company and their long term outlook of the field, I concluded that Cloudera had more upside than risk, so I invested.
More thoughts on the current state of Cloudera to come.
