QLYS Stock Study (4-17-23)

Posted by Mark on May 8, 2023 at 06:38 | Last modified: April 17, 2023 14:37

I recently did a stock study on Qualys Inc. (QLYS) with a closing price of $128.55.

M* writes:

     > Qualys Inc. is a cloud security and compliance solutions
     > provider that helps businesses identify and manage their
     > security risks and compliance requirements. The California-
     > based company has more than 10,000 customers worldwide,
     > the majority of which are small- and medium-sized businesses.

Over the last 10 years, this small-size company has grown sales and EPS at annualized rates of 17.8% and 16.3% [my gut instinct is to exclude fractional EPS years of ’13, ’15, and ’16 that, if included, would inflate the annualized rate to 38.6%. Whether this is reasonable is a separate topic for discussion]. Lines are mostly up, straight, and parallel except for EPS spike in ’14 along with EPS dips in ’15 and ’21. PTPM generally trails industry averages but leads negative and declining peer averages [corrupt data, perhaps?] in rallying from 2.0% in ’13 to 27.3% in ’22 with a last-5-year average of 24.4%.

Over the last decade, ROE has also been lower than industry averages while leading peers in rallying from 1.6% in ’13 to 29.3% in ’22 with a last-5-year average of 20.2%. Having no long-term debt, Debt-to-Capital has been much lower than peers and lower than the industry, averaging 0.5% over the last five years (uncapitalized leases).

M* gives a “Standard” Capital Allocation rating while Value Line assigns a B+ for Financial Strength. Quick Ratio is 1.26.

I forecast 9% long-term annualized sales growth based on the following:

• CNN Business projects 13.6% YOY and 13.5% per year for ’23 and ’22-’24, respectively (based on 13 analysts).
• YF projects YOY 13.4% for both ’23 and ’24 (16 analysts).
• Zacks projects YOY 13.4% and 14.1% for ’23 and ’24, respectively (6).
• Value Line projects 12.9% annualized growth from ’22-’27.
• CFRA projects 13.6% YOY and 13.7% per year for ’23 and ’22-’24, respectively (17).
• M* gives a 2-year ACE of 13.3% annualized growth while projecting 12.0% for the next five years in its analyst note.

I am forecasting conservatively.

I forecast 5% long-term annualized EPS growth based on the following:

• CNN Business projects 11.8% YOY and 12.6% per year for ’23 and ’22-’24, respectively (based on 13 analysts), along with 5-year annualized at 5.3%.
• MarketWatch projects 14.2% and 13.9% per year for ’22-’24 and ’22-’25 (17 analysts).
• Nasdaq.com projects 17.1% YOY and 18.4% per year for ’24 and ’23-’25, respectively (3, 3, and 2 analysts for ’23, ’24, and ’25).
• YF projects YOY 11.6% and 13.5% for ’23 and ’24, respectively (15), along with 5-year annualized growth at 8.0%.
• Zacks projects YOY 11.6% and 14.2% for ’23 and ’24, respectively (7).
• Value Line projects 10.4% annualized growth from ’22-’27.
• CFRA projects 51.5% YOY, and 30.8% per year for ’23 and ’22-’24, respectively (16).

I am forecasting just below the long-term-estimate range (mean of three: 7.9%).

I don’t give much weight to the shorter-term estimates but I do find CFRA’s upside outliers to be suspicious especially since they report 16 analysts. This is a huge spike and would doubtless command an outsized P/E.

My Forecast High P/E is 45. The lowest high P/E over the last 10 years was 50.3 in ’14. The last-5-year average is 65.9. The top of my comfort zone is closer to 30, but that results in an invalid (lower than previous close) projected high stock price.

Being a small company, perhaps QLYS still has years of supersized P/E remaining. I’ll have to watch this closely.

The current P/E is 46.6. I will discount that to the nearest 5-multiple as my Forecast High P/E. With 53.1 as the last-5-year average P/E, I could argue this as conservative.

My Forecast Low P/E is 28. The lowest low P/E over the last 10 years was 22.2 in ’14. The last-5-year average is 40.3. I am forecasting near the low end of the range (only ’14 is lower).

My Low Stock Price Forecast (LSPF) is the default value of $77.30. This is 39.9% less than the previous close, 23.5% less than the 52-week low, and 14.4% less than the 2021 low.

These inputs land QLYS in the HOLD zone with an U/D ratio of 0.6. Total Annualized Return (TAR) is 4.1%.

PAR (using Forecast Average—not High—P/E) is -0.1%. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on total annualized return instead. Even that, though, is far less than I seek for a small-size company.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 184 studies done in the past 90 days (my study along with 48 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 13.0%, 12.0%, 54.4, and 35.7. I am lower across the board. MOS in this study seems robust.

With regard to other data, MS high and low EPS are $4.83/share and $2.51/share compared to my $3.50 and $2.76. My low EPS may be higher due to recent quarterly growth while my high EPS is lower due to a lower forecast growth rate. MS LSPF is $87.60 (13.3% higher than mine). This is WAY higher than the default $4.83 * 54.4 = $262.75. $87.60 actually implies a Forecast Low P/E of 18.1.

I would look to re-evaluate this stock under $97/share.

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