Sands Capital Management recently disclosed its 13F portfolio updates for the third quarter of 2022, which ended on Sept. 30.
Founded in 1992 by Frank M. Sands Sr., Sands Capital Management is an independent investment management firm that invests in high-quality growth business. Frank Sands (Trades, Portfolio) Jr. joined the firm in 2000 and currently serves as CEO and chief investment officer. The Arlington, Virginia-based firm has two main concentrated growth strategies: Select Growth, which chooses innovative businesses, and Global Growth, which diversifies holdings in countries outside of the U.S. Sands Capital focuses on six investment criteria: sustainable above-average earnings growth, leadership position in a promising business space, a clear mission with a focus on value, good financial strength, rational valuation and significant competitive advantages.
According to the firm’s latest 13F portfolio, it took a new stake in Repligen Corp. (RGEN, Financial), a leader in bioprocessing, in the third quarter. Meanwhile, it sold out of Twilio Inc. (TWLO, Financial), a provider of customizable customer engagement platforms.
Investors should be aware that 13F reports do not provide a complete picture of a guru’s holdings. They include only a snapshot of long equity positions in U.S.-listed stocks and American depository receipts as of the quarter’s end. They do not include short positions, non-ADR international holdings or other types of securities. However, even this limited filing can provide valuable information.
Sands Capital Management loads up on Repligen
In the third quarter, Sands Capital Management’s top new buy was Repligen Corp. (RGEN, Financial). The firm bought 1,638,959 shares of the bioprocessing company, giving it a 1.15% weight in the equity portfolio. During the quarter, shares averaged $210.87 apiece.
Repligen develops and manufactures products for the biopharmaceutical industry that aid in the development and manufacturing of biological drugs. Its novel technologies have made it a leading pure-play provider of flexible, configurable and high-performing bioprocessing tools. Founded in 1981 and headquartered in Massachusetts, the company has been an expert in its field for four decades.
This company falls into the “pick and shovel” category, meaning it provides essential tools for an industry’s operations – in this case, Repligen is a pick and shovel play for the biopharmaceutical industry. As long as the biopharmaceutical industry is growing, a company like Repligen that provides leading tools can expect to do well.
Repligen’s business strategy is to provide single-use systems that improve efficiency, reduce contamination risks and reduce costs for consumers when compared to legacy stainless steel systems. It has developed and made key acquisitions of products to create comprehensive, end-to-end workflow systems. For example, a vaccine developer can partner with Repligen to build a workflow involving bioreactors, filtration and chromatography equipment.
Back in 2019, the company's management estimated its total addressable market at about $10 billion. Its revenue of $270 million for that year represented just 3% of its potential by this estimate. Adding merit to its growth estimates, Repligen has a three-year revenue per share growth rate of 40% and a three-year earnings per share without non-recurring items growth rate of 82.3%.
The GF Value chart rates the stock as a possible value trap because it is trading too far below its fair value estimate, raising a red flag. Moreover, its price-earnings ratio of 60.24 is rather high for the industry, though as the GF Value chart considers the stock’s past multiples, past performance and estimates of future business performance, it can still sometimes turn out a fair value estimate with high multiples.
The firm has sold out of its stake in Twilio
The firm sold out of its 4,477,343-share stake in customer engagement company Twilio Inc. (TWLO, Financial), which used to take up 1.30% of the equity portfolio. Shares traded for an average price of $79.91 in the three months through the end of September.
Twilio is a provider of cloud-based communications platforms that allow companies to communicate more easily and efficiently with their clients. Its API, which includes text-to-speech, natural language understanding, communications cost optimization, custom programming and more, allows developers to build user experiences using just software to interact with the Twilio API, greatly reducing complexity and upfront costs.
Due to its incredible ease of use compared to previous solutions, Twilio has become very popular and now serves more than 275,000 active business customers and is used by more than 10 million developers. The company is continuing to innovate and expand its offerings with products like Flex, which builds cloud-based contact centers for customers, and Engage, which helps build personalized marketing campaigns.
However, Twilio’s innovation has not come cheap. Even six years after going public, it has still not achieved profitability, and investors are getting impatient with the continued cash burn. The company’s operating margin sits at -29.18%, while its net margin is -49.07%. While the top line has been growing, the bottom line has been plummeting.
While analysts are expecting the company to grow its revenue and earnings in the years to come, the consensus still places Twilio’s bottom line in the red until at least 2025, which is not an encouraging sign for investors shaken by a bear market.
The GF Value chart also rates Twilio as a possible value trap, though in this case it is due to declining profitability on top of the dramatic share price drop. Investors may need to see more substantial progress toward profitability before taking another look at this stock.
See also
Sands Capital Management’s other notable trades in the second quarter included reductions to the Visa Inc. (V, Financial) and Taiwan Semiconductor Manufacturing Co. Ltd. (TSM, Financial) holdings and additions to the Lam Research Corp. (LRCX, Financial) and Nu Holdings Ltd. (NU, Financial) positions.
At the end of the quarter, the firm had holdings in 67 stocks in a 13F equity portfolio valued at a total of $26.65 billion. The top holdings were Visa with 7.16% of the equity portfolio, Amazon.com Inc. (AMZN, Financial) with 6.95% and DexCom Inc. (DXCM, Financial) with 5.05%..
In terms of sector weighting, the firm was most invested in technology, consumer cyclical and health care stocks.
