Bill.com (BILL) is not expected to become profitable for at least a year, yet it became one of the best IPO stocks, up nearly 800% from its initial offering in December 2019. The stock topped a buy point Wednesday.
The stock is a success thanks to outstanding sales growth and a promising business model. Bill.com — today’s pick for IBD 50 Stock To Watch — nearly doubled its sales in the fiscal year ended June 2019. In the next fiscal year, sales rose 48%. In the past three quarters, sales climbed 31%, 38% and 45%. For the fiscal year that ended last month, analysts expect sales to grow 41% to $221.7 million, according to FactSet.
Palo Alto, Calif.-based Bill.com is a provider of cloud-based software that digitizes and automates the often-messy back-office financial operations for small and midsize businesses. Companies can generate and process invoices, expedite payments and sync those transactions with their accounting systems.
Bill.com generates about half its revenue from subscriptions to its cloud software and roughly half from transaction fees. A small percentage is from customer funds while payments are clearing.
Best IPO Stocks: Company Makes Acquisitions
The company is also expanding through acquisitions. This week, it announced the purchase of Invoice2go, an accounting software provider, for about $625 million in cash and stock. In June, it completed its $2.5 billion acquisition of DivvyPay, which provides companies with real-time data on spending and cash flow.
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Canaccord Genuity last week gave a bullish view on Bill.com, putting on a buy rating and a 223 price target. Analyst Joseph Vafi is impressed with Bill.com’s ability to add payment-volume revenue to its cloud software business.
“We view this as doubly impressive given how tough (small and midsize businesses) can sometimes be to monetize,” Vafi wrote.
A growing network effect between business-to-business buyers and sellers brings more small and midsize companies into Bill.com’s ecosystem, he adds. Also, established financial companies continue to partner with tech players to enhance the customer experience. “Together, the indirect channel that BILL has built is impressive in its breadth, depth and ability to monetize,” he said.
The stock trades at a high valuation, but the analyst believes it’s justified given the company’s outlook.
Best IPO Stocks: Bill.com Tops Buy Point
Bill.com’s chart formed a double-bottom base, breaking out past a 167.56 buy point on June 17. After a brief advance, the stock stalled starting late June. A handle formed with a 192.99 buy point, but Bill.com kept meeting resistance around 195.
With that entry frustrated, a new handle developed a 197.81 buy point. The stock climbed above that entry Wednesday, but volume was poor. It’s not a lost cause yet. Weekly volume is on a stronger pace. Watch for volume to pick up if Bill.com holds above the buy point.
The latest base is third stage and arguably fourth stage. That’s getting late in the stock’s advance and represents a risk. On the other hand, the latest base is better shaped and had calmer price action than prior bases. It also showed good accumulation, with several up weeks in above-average volume. The up-down volume ratio of 1.5 is also bullish.
Bill.com went public in December 2019 at 22 a share. Today, it trades around 198.
Juan Carlos Arancibia is the Markets Editor of IBD and oversees our market coverage. Follow him at @IBD_jarancibia
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