CXDO - Crexendo: M&A Strategy To Turbocharge Organically Increasing Cash Flows
2024-06-27 10:28:34 ET
Summary
- Crexendo, Inc. is experiencing double-digit organic growth in mostly recurring revenue with operating expenses to compress, suggesting huge operating leverage potential.
- The company has the best-in-class product offering in a rapidly expanding industry, with a pristine balance sheet and management that focuses on shareholder value.
- I put the fair value of Crexendo, Inc. shares at $10, but if the acquisition strategy works as expected, I'd raise this to $15.
Thesis
Crexendo, Inc. ( CXDO ) is experiencing double-digit organic growth in mostly recurring revenue. Operating expenses are likely to compress over the next couple of years. Crexendo has the best-in-class product offering in a rapidly expanding industry. It has a pristine balance sheet and a large pool of bite-sized accretive acquisition targets.
The management team is heavily invested and seems shareholder-value-focussed. Analyst estimates for revenue seem plausible if only considering organic growth. However, they don’t understand Crexendo’s operating leverage, leading to low earnings estimates. They also entirely ignore the M&A strategy. That ticks just about all the boxes that I can think of.
Based on my free cash flow ("FCF") model for pure organic growth, I could see the stock tripling within a few years. Factoring in their M&A strategy, a triple would be a disappointment.
Introduction
Crexendo offers Unified Communications as a Service (UCaaS) to enterprises. UCaaS connects a company using communication tools such as voice, video, messaging, collaboration, and the cloud. Crexendo also resells accompanying hardware. Most revenues are for recurring services, with rolling contracts typically lasting 36 or 60 months....
Crexendo: M&A Strategy To Turbocharge Organically Increasing Cash Flows