Following a disappointing Q3 2020 report Ping Identity (NYSE:PING) seems to have bottomed out at the 20-dollar level. The cybersecurity company focused on identification systems for digital enterprises has seen some tremendous growth since their 2019 IPO. However, after some insider-selling after they reached an all-time-high due to investors flowing into covid-proof tech stocks, there has been some suspicion among investors. Their recent harsh sell-off is an indicator of that doubt among investors. It seems that their growth seems to be stagnating, a huge blow for the company with a two billion dollar market cap.
Some Worrying Signs Point To Potential Second Leg Downwards
A worrying sign is that Vista Equity Partners holds over 50 percent of the stock, Ping Identity is their second largest holding and they shouldn’t be too trilled about their recent performance. The danger of one big fish like this is that they completely determine the stock market value. It seems as if the company relies entirely on their partnership with this private equity fund. Vista Equities sold around twenty percent of their shares in Ping Identity (NYSE:PING) in recent months. A sign of decreasing faith of the investment fund in this Ping Identity, along with insider selling these are some worrying signs for new investors.
Fundamentals Look Decent, But Are Not Growing
Year-over-year their revenue declined despite the surge in demand for work-from-home technological solutions. It seems that this somewhat small player in the field missed their shot to increase their customer share and even have had a tougher quarter than expected with revenues down 2.95% y/oy in their last quarter. A positive sign is that their cash position has been growing faster then their current liabilities. Estimates point towards more growth in 2021, a sign that this company will thrive once people will go back to office again. However, for Q4 there are still some doubts whether this company will perform as well as expected, but after their recent sell-off at these levels it is less risky to step-in. Stagnating growth is a bad sign for small cap stocks, it will become harder to find financial support and increases risk of share issuance diluting current share prices.
Diversifying With Other Small Cap Software Stocks Is Advisable
When buying into small cap players like Ping Identity it is of great importance to reduce risk and avert unpleasant surprises by creating a balanced position in cybersecurity and software stocks. Balancing out the underperforming Ping Identity stock with an outperforming stock would be one way to reduce risk. While Ping Identity has been underperforming under these circumstances, Computer Task Group Inc. (NASDAQ:CTG) has blown away analyst expectations in Q3 with their high earnings-per-share. Their low P/E-ratio of 14.22 is very low compared to the industry P/E-ratio of 22.12, but could be short lived as this could be a one time covid-wonder performance. However, despite their recent spike, insiders have been cautiously buying extra stocks. This seems like the completely opposite pattern Ping Identity is seeing and thus could balance out risks involving buying into the rise, while buying into the dip at Ping Identity.
However, as all tech stocks seem to be overpriced and supported by high levels of government spending and central bank liquidity, investors should be cautious buying too much into the current covid-bubble. On the short run new rounds of stimulus are inevitable, but on the long run inflation figures could hamper stocks. And as vaccine news has boosted value stocks before, it could be that tech stocks could underperform on the short run in a shift to value and dividend stocks. However, if one is looking for reasonably priced small cap software growth stocks, these would be the two picks of The Golden Investor. But be aware that despite diversification it could be a rollercoaster ride considering their high volatility and current expected growth already priced-in.
Gold Declines Bottomed Out On Stimulus News
In other news, gold has bottomed out at the $1775 USD dollar level. Where Citi Group has an estimate of 2300 USD dollars for 2021, Deutsche Bank recently announced they were increasingly bearish on gold. However, this could also be the case because Deutsche Bank is forced to be positive about the economy to support their own financials. The Golden Investor expects some short term recovery for gold due to new rounds of stimulus. By 2021 the gold price could easily reach the $2000 USD dollar mark, with a potential top at $2200 USD dollar, depending on how the vaccine will perform. November job-figures seem to be dropping as corona cases rise and governmental support is expiring at the end of the year. The December decisions by central banks and governments are vital for the outlook for gold, more on that later in the 2021 gold outlook by The Golden Investor.
Disclaimer: The writer of this article doesn’t hold Ping Identity (PING) and Computer Task Group (CTG) stock, this article should not be interpreted as investment advice or anything like that.