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Tech Stocks

The Future is Now

By Elliott H. Gue, on Sep. 18, 2015

Our strategy for playing this trend focuses on two lower-risk opportunity sets:

  • Pure-play SaaS providers that should be able to deliver significant revenue growth by winning market share; and
  • Established software companies that serve niche markets and have started to make the transition to a subscription-based model.

Focusing on companies that have demonstrated enough proof of concept ensures that we’re not investing in vaporware or empty promises. After all, the size of the potential market is only meaningful if the company has the product and strategy to take advantage of this opportunity.

And although the SaaS model promises revenue sustainability, contract wins for would-be disruptors are difficult to predict and often take longer than expected to materialize, setting the stage for disappointment.

Consider Amber Road (NYSE: AMBR), a fledgling SaaS company that specializes in global trade management for complex supply chains and has given up about 70 percent of its value since its initial public offering (IPO) in March 2014.

Although Amber Road’s growth story could work out in the long term, the company’s guidance has disappointed consistently, and the major deals that management has promised have yet to materialize.

Our favorites are far enough along in their life cycles that issues of this nature shouldn’t derail our picks.

However, given the momentum associated with some of these names, a selloff in the broader market—a distinct possibility in coming months—could hit these stocks hard after their strong performance since mid-2014.

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