Bottomline Tech’s Stock At $50: More Gains?

Bottomline Technologies’ stock (NASDAQ: EPAY) has rallied 55% since late March (vs. about 51% for the S&P 500) to its current level of $52. This is after falling to $34 in late March, as a rapid increase in the number of Covid-19 cases outside China spooked investors, and resulted in heightened fears of an imminent global economic downturn. The stock is currently near its beginning of February 2020 price of $51. Are the gains warranted or are investors getting ahead of themselves? We believe that the stock recovery is justified, but the stock has run out of room to grow in the near term. Why is that? Bottomline Tech, in response to the Covid-19 pandemic, offered a free of cost simplified SBA (Small Business Administration) loan application platform for banks providing SBA loans under the Paycheck Protection Program in the US. The company also saw a positive revenue growth for FY 2020 (ended June 2020). The market seems to have factored all this in, with the stock recovering to its early February level. We also have a detailed comparison of Bottomline Tech’s stock performance during the current crisis with that during the 2008 recession in our dashboard analysis.

How Did Bottomline Tech Fare During 2008 Downturn?

We see EPAY’s stock declined from levels of around $14 in October 2007 (the pre-crisis peak) to roughly $6 in March 2009 (as the markets bottomed out) – implying that the stock lost as much as 41% of its value from its approximate pre-crisis peak. This marked a drop that was smaller than the broader S&P, which fell by about 51%.

Further, EPAY’s stock rose steadily post the 2008 crisis to about $18 in early 2010 – rising by about 200% between March 2009 and January 2010, as against the S&P which bounced back by about 48% over the same period.

In comparison, EPAY’s stock lost 32% of its value between 19th February and 23rd March 2020, and has already recovered 52% since then. The S&P in comparison fell by about 34% and rebounded by about 51%.

Is The Recovery Warranted & Can We Expect Further Gains?

The rally across industries over recent weeks can primarily be attributed to the Fed stimulus which largely quieted investor concerns about the near-term survival of companies. The flattening of Covid cases in the worst hit U.S. and European cities is also giving investors confidence that developed markets have put the worst of the pandemic behind them.

The global spread of coronavirus has led to lockdown in various cities across the globe, which has affected industrial and economic activity. This is likely to adversely affect consumption and consumer spending.

Bottomline Tech’s revenues saw a steady growth for Q4 and FY 2020 (FY ends in June) due to strong demand for digital payment solutions which resulted in record subscription bookings in the fourth quarter and for the fiscal year. The company, in response to the Covid crisis, has given a free of cost solution to banks to process SBA loans under the Paycheck Protection Program in the US.

Over the coming weeks, we expect continued improvement in demand and subdued growth in the number of new Covid-19 cases in the U.S. to boost market expectations. Following the Fed stimulus — which helped set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view, with investors focusing their attention on 2021 results.

So, while Bottomline Tech seems to have run out of room to grow, what if you are looking for a more balanced portfolio instead? Here’s a top quality portfolio to outperform the market, with 170% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk. It has outperformed the broader market year after year, consistently.

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