Pluralsight Inc: Half-Price Sale From IPO, May Be Time to Shop

Pluralsight Inc: Half-Price Sale From IPO, May Be Time to Shop
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Pluralsight Inc: Bearish Chart but Selling Is Excessive

It’s that time again, when I scour through the stock market trash bin and search for stocks that may have been erroneously dumped.

My search has yielded mid-cap Pluralsight Inc (NASDAQ:PS), which collapsed by more than 30% on August 1 after management provided a soft outlook.

PS stock gapped down from $30.69 on July 31 to close at $18.56 the following day, below which it’s currently languishing. Note that the company launched its initial public offering in May 2018 at $20.00.

Trading about 50% below its high of $35.70, Pluralsight stock is worth a look for the aggressive trader seeking a high-risk/reward contrarian trade.

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Chart courtesy of StockCharts.com

Pluralsight provides a cloud platform with over 6,700 technology skill courses to more than 17,000 business clients in over 180 countries. It works with more than 340 Fortune 500 companies.

My bullish thesis for Pluralsight is based on the strong demand for workers to constantly update their technology skills. Given the rapid changes in the technology space, Pluralsight is situated in the right space.

Strong Revenue Growth Bodes Well for PS Stock

Pluralsight has a short reporting history, but its financial growth has been stellar so far.

The company’s revenues rose at a compound annual growth rate (CAGR) of 32.7% from 2016 to 2018, as the below table shows.

Fiscal Year Revenues (Millions) Growth
2016 $131.8
2017 $166.8 26.5%
2018 $232.0 39.1%

(Source: “Pluralsight Inc. Cl A,” MarketWatch, last accessed October 3, 2019.)

Pluralsight is expected to ramp up its revenues by 35.5% to $314.5 million for full-year 2019, and then by 29.5% to $407.3 million for 2020. The expected growth rate being lowered for 2020 might have caused the selling of Pluralsight shares. (Source: “Pluralsight, Inc. (PS),” Yahoo! Finance, last accessed October 3, 2019.)

Pluralsight is still losing money on an adjusted basis. In 2018, it lost an adjusted $0.60 per diluted share, but it’s expected to narrow this loss to $0.40 per diluted share in 2019 and to $0.32 per diluted share in 2020.

So far, Pluralsight has managed to deliver an earnings-per-share (EPS) beat in four consecutive quarters.

The company has yet to produce positive free cash flow during the revenue growth stage. This is expected, and should improve as its losses narrow.

Fiscal Year Free Cash Flow (Millions) Growth
2016 -$5.67
2017 -$18.09 -218.8%
2018 -$14.69 18.8%

(Source: MarketWatch, op. cit.)

Analyst Take

The key for Pluralsight is to continue growing its revenue base and transition toward profitability and free cash flow.

Insiders have been heavily buying Pluralsight stock. Over the past six months, insiders bought 31.3 million shares and only sold 17.4 million shares. (Source: Yahoo! Finance, op. cit.)

Keep an eye on the short position of around 12.3 million shares, representing 15.1% of the float as of September 13. (Source: MarketWatch, op. cit.)

If PS stock rallies, we could see short sellers rush to cover and give the long side some much needed support.