SolarWinds Corporation: Steady Growth at Reasonable Price

SolarWinds Corporation (NYSE:SWI) Steady Growth at a Reasonable Price
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SolarWinds Stock Could Be Next Great Technology Infrastructure Play

An intriguing mid-cap provider of IT infrastructure management software with an excellent risk/reward prospect is SolarWinds Corporation (NYSE:SWI).

After launching its initial public offering (IPO) at $15.00 in October 2018, SWI stock traded as high as $21.22 in March, prior to the lock-up period expiring. Down 21% from its high, this stock looks appealing for long-term investors.

Chart courtesy of StockCharts.com

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Now, you may think SolarWinds stock is a play on the alternative energy space, but it isn’t.

SolarWinds Corporation provides IT infrastructure management software for companies to manage their critical and costly IT assets in both the cloud and physical environments.

My bullish thesis for SWI stock is based on the rising demand for its solutions as companies spend more on expensive IT assets.

SolarWinds is not small. With a market cap of $5.3 billion, the company has scale to grow. It’s not too big to hinder decisions and it’s not too small to be vulnerable to market risk.

Strong Growth Supports Bull Case for SWI Stock

A glance at the fundamentals of SolarWinds Corporation makes the case for a higher share price.

Revenues have risen in seven consecutive years from 2010 to 2018. Since 2016, SolarWinds nearly doubled its revenues, as the below table shows.

Fiscal Year Revenue (Millions)
2016 $469.4
2017 $728.0
2018 $833.1

(Source: “SolarWinds Corp.MarketWatch, last accessed August 29, 2019.)

The positive revenue growth is estimated to continue, at 13.4% to $944.7 million in 2019 and at 12.1% to $1.1 billion in 2020. (Source: “SolarWinds Corporation (SWI),” Yahoo! Finance, last accessed August 29, 2019.)

Along the way, SWI has reported generally accepted accounting principles (GAAP) profits in six of the past eight years.

Fiscal Year GAAP Earnings (Millions)
2016 -$334.40
2017 -$351.87
2018 $364.64

(MarketWatch, op. cit.)

Looking ahead, SolarWinds is estimated to report earnings of $0.81 per share this year, up 35% from the $0.60 in 2018. Then it’s estimated to report earnings of $0.93 (or as high as $0.97) per share in 2020. (Source: Yahoo! Finance, op. cit.)

SolarWinds is also a free cash flow machine, churning out piles of cash each year.

Analyst Take

With SolarWinds Corporation you have a technology company that has displayed strong and consistent growth, and its stock trades at a reasonable valuation compared to its peer group.

Trading at 17 times the high earnings estimate for 2020, and with a price/earnings to growth (PEG) ratio of 1.25, SWI stock is worth a look.