Ron Baron (Trades, Portfolio) is a legendary growth stock investor and the founder of Baron Funds, an investment firm that reported over $29 billion worth of stocks in its 13F filing for the fourth quarter of 2022. Baron is known for being an early investor in Tesla (TSLA, Financial). In a 2022 interview with Business Insider, he forecast the company could grow to be worth over $4 trillion over the next decade.
In this article, we're going to dive into two other growth stocks that Baron's firm was buying in the fourth quarter of 2022, according to its latest 13F filing: JD.com (JD, Financial) and CyberArk Software Ltd (CYBR, Financial).
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.
1. JD.com
JD.com (JD, Financial) is a leading e-commerce company in China. The company provides both a direct retail platform, in which it sells products directly to consumers in various categories from electronics to groceries, and a marketplace, which enables third-party merchants to sell their products on its platform. On the logistics side, the company has built out a wide network which includes over 900 warehouses and 7,000 delivery hubs across China.
JD.com even incorporates drones and self-driving vehicles into its delivery process, which is something Amazon (AMZN, Financial) has been working on for a long period of time.
Stable financials
JD.com reported steady financial results for the third quarter of 2022. Its revenue was $34.21 billion, which increased by just 1% year over year and missed analyst forecasts by ~$267 million.
This growth rate was substantially lower than the 21% growth rate reported in the first quarter of 2022 and the 26% growth rate reported in the second quarter of 2022. This was mainly driven by lower consumer demand and supply chain impacts from the strict Covid-19 lockdown policies which were still prevalent in China throughout 2022.sho
A positive is a series of protests across China in the fourth quarter caused the government to walk back the vast majority of its Covid-19 restrictions. This is good news for JD.com, as consumers should start spending more due to the economic reopening.
JD.com has also continued to increase its net active users by 10 million year over year to 588 million. On March 6, , JD.com even launched a huge $1.4 billion campaign to offer a series of discounts across China in anticipation of a reopening.
Moving on to profitability, JD.com reported operating income of $1.054 billion in the third quarter, which increased by a blistering 241% year over year, which was incredible. On an earnings per share (EPS) basis, the company reported $0.05, which surpassed analyst forecasts by $0.10.
JD.com also has a solid balance sheet with $29.7 billion in cash and marketable securities versus debt of approximately $9 billion, but around $4 billion of this is long-term debt and thus manageable given the company’s strong cash position.
Valuation and guru investors
JD.com trades at a forward price-earnings ratio of 16.32, which is close to 56% cheaper than its five-year average.
The company also trades at a price-sales ratio of 0.49, which is nearly 34% cheaper than its five-year average.
The GF Value chart indicates a fair value of $117.58 per share and thus the stock is “significantly undervalued” at the time of writing.
Baron Funds purchased 346,934 shares of the stock in the fourth quarter, during which shares traded at an average price of ~$50.31 apiece.. Baron has a total of 1.257 million shares of the stock as of the quarter's end.
Other guru buyers during the fourth quarter included Sarah Ketterer (Trades, Portfolio), Philippe Laffont (Trades, Portfolio) and Jim Simons (Trades, Portfolio)' Renaissance Technologies.
2. Cyberark Software
CyberArk Software (CYBR, Financial) is an Israeli cybersecurity company that offers a platform for privileged access management. According to Gartner (IT, Financial) peer reviews, the company is a leader in this space with 4.7 stars out of 5 with its Workforce identity Cloud.
Competitor Okta (OKTA, Financial) offers a similar solution, but overall this market has a high barrier to entry and is extremely lucrative. This is because over 60% of all cyber hacks in 2022 involved login credentials such as passwords being stolen or breached, according to a study by Verizon (VZ, Financial). Thus the opportunity to solve this problem from both an employee login and customer login point of view is tremendous.
CyberArk aims to monetize this opportunity through its software license packages and cloud based services. In addition, the company offers professional services to help with implementation and consulting on various services.
Growing financials
CyberArk reported strong financial results for the fourth quarter of 2022. Its revenue was $169.15 million, which increased by 11.78% year over year, despite missing analyst expectations by ~$5 million.
This growth was driven by its larger customer growth. "Larger customers" increased by a rapid 40% year over year to 1,300. These larger customers each generate over $100,000 in annual recurring revenue (ARR) for the company, which is exceptional.
The company’s total ARR also increased by 45% year over year to $570 million. Management has bold plans to generate $1 billion in ARR over the next few years which.
Moving on to profitability, the company reported an operating loss of $30.1 million in the fourth quarter. This is substantially worse than the $11.8 million operating loss reported a year ago. A positive is its earnings per share was $0.16 on a non-GAAP basis, which surpassed analyst forecasts.
CyberArk also has a strong balance sheet with $954 million in cash and short term investments versus $569 million in total debt, of which the majority is long term debt.
Valuation and guru investors
CyberArk software trades at a price-sales ratio of 10.39, which is just under 1% cheaper than its five-year average.
The GF Value chart indicates a fair value of $164 per share and thus the stock is “fairly valued” at the time of writing.
Baron's firm initiated a new stake of 84,970 shares in CyberArk in the fourth quarter. Paul Tudor Jones (Trades, Portfolio) was also buying the stock during the period.
Final thoughts
Both JD.com and CyberArk are tremendous companies. JD.com is an ideal way to play the recovery in the Chinese economy and the rebound in e-commerce demand, whereas CyberArk taps into the growth in the cybersecurity industry and the need for secure identity access management.
