With the extreme rise of special purpose acquisition companies, or SPACs, it’s hard not to get the impression that some investors are betting on the vehicle rather than the substance. But Apex Technology Acquisition Corp. (NASDAQ:APXT) stock seems to be cut from a different cloth.
Therefore, as APXT stock is staring at a year-to-date loss of 27%, it could represent a buying opportunity.
For one thing, Apex identified its reverse-merger target last year as AvePoint. As a data migration company, AvePoint already levered significant relevance. But due to the novel coronavirus and the resultant work-from-home initiatives across the nation, data migration and cloud computing in general garnered massive interest. You might even say that the cloud was a matter of national security and stability.
Further, AvePoint has serious clout within the Software as a Solution industry. As our own Chris MacDonald wrote last month:
The company’s main partner is Microsoft (NASDAQ:MSFT). Indeed, AvePoint has played a large role in data migration to Microsoft’s cloud platforms. Additionally, AvePoint has helped with Microsoft’s various migration projects for Microsoft Teams, SharePoint and other products.
This core business provides highly profitable SaaS revenue for AvePoint.
Importantly, this fast-growing revenue stream appears to be surrounded by a nice moat. The moat comes from the highly regulated nature of the products AvePoint provides.
Obviously, the Microsoft partnership helped drive up APXT stock to its prior peak. Moreover, the idea of AvePoint carrying a moat isn’t an unreasonable thesis. In prior years, data migration could consume as much as 60% of associated labor costs. That’s because the process is a mess – imagine trying to move into a new house but at the enterprise level.
That’s why MacDonald stated that it’s “costly and painstaking to build a competitive product portfolio” in the data migration and cloud management space. It’s why so many believed in APXT stock.
Of course, it raises the question: where the heck are the believers now?
Big Data Could Pose Big Problems For APXT Stock
According to industry experts, the global data migration market could “reach $10.98 billion by 2025.” That translates to a possible compound annual growth rate (CAGR) of 18.37% between 2020 and 2025. You combine that with the Microsoft partnership, and you can understand the early enthusiasm for APXT stock.
Plus, AvePoint isn’t a slouch in the financial department. As InvestorPlace contributor David Moadel stated, in the company’s full fiscal year of 2020 report, it generated $151.5 million in total revenues, up 31% year-over-year. Also, recurring revenue hit $114.5 million, up 37% from the year prior. Notably, subscription revenues totaled $91 million, up 66% from the previous year.
These are very encouraging numbers. So, why is APXT stock down 27%?
I think it’s important to realize that a huge gap exists between what a company should trade for versus what investors believe is the real trajectory of the stock in question. That would be my counterargument to InvestorPlace’s Mark Hake. I don’t disagree with his math that shows APXT stock is undervalued. But analyst projections typically come from past data mixed with projections.
Here, the market could believe that the projections and the implied trajectory of past growth is “wrong.” I put this word in quotation marks because forward-looking statements are never right nor wrong until proven otherwise.
The biggest challenge I see facing APXT stock is that the broader cloud data storage and management sector is extremely competitive and crowded. New innovations such as the blockchain or Kubernetes could really complicate the narrative.
For instance, the latter is an open-source platform developed by Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) that “automates the deployment, scaling, and management of applications through what is called ‘containerization’. Simply put, it involves placing applications in stand-alone containers with their own operating systems, making the applications portable.”
Thanks to the advanced nature of digitalized technology, a faster, cheaper and more scalable platform is just a mouse click away.
Did Crypto Spank the SPACs?
As I mentioned in another InvestorPlace article, we live in a paradigm of limited resources. Therefore, if more money is directed to one sector in the economy, the other sectors necessarily receive less money. This is basic logic, as I’m sure you’ll agree.
Well, APXT stock could be on the less profitable end of this equation. Earlier, people were going crazy for all things SPAC related. Now, the craziness has decisively shifted toward cryptocurrencies. I’m not going to list them, but you know what I’m talking about. Indeed, there are some junk crypto coins – I think they’re junk anyways – that are putting up bonkers numbers.
That’s great for crypto but that necessarily leaves less resources overall for other investments, including SPACs. Keep this in mind before you take a risky bet on APXT stock.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.