Investors bet that construction will recover by buying Procore Technologies Inc. (NYSE: PCOR).
To explain, Procore (PCOR) specializes in construction management software. Procore claims its products serve over one million construction projects in over 125 countries.
Mr. Market thinks construction and Procore will recover. Mr. Market paid $88 for Procore when it went public on 20 May 2021 and $95.59 for the stock on 14 July 2021.
Will Construction Recover
Construction is an enormous industry. Statista valued the US private construction market a $1.141 trillion in November 2020.
The US construction industry will grow by 15.6% to $1.516 trillion in 2021, ResearchAndMarkets estimates. Furthermore, US construction could grow to $1.819 trillion by 2025.
Moreover, US construction industry startups have raised over $1.5 billion in the first six months of 2021, Crunchbase estimates. Many of those startups aim to solve industry problems such as supply chain problems.
Construction is also booming overseas. British construction is experiencing its strongest growth in 25 years, The Guardian claims. However, materials shortages threaten the UK construction boom. For example, 77% of British construction firms report delays in receiving supplies. They have also reported materials shortages in Australia.
Construction’s Future looks Bright
Construction’s future looks bright because of an enormous housing shortage in the United States.
For example, Freddie Mac estimates there was a 3.8 million deficit of housing units in the United States in the fourth quarter of 2020. Furthermore, the housing stock deficit grew by 52% between 2018 and 2020, Freddie Mac estimates.
The shortage will grow because they built much of America’s housing stock around 70 years ago during the post-World War II GI Bill housing boom, Veev CEO Amit Haller speculates.
Veev is trying to modernize housing construction by using steel instead of wood as a building material and adding computerized controls to homes. One hope at Veev is to create new kinds of modular housing to revitalize the affordable housing market.
Congress could give construction a boost if it passes a Democratic plan that could spend $579 billion on physical infrastructure. However, that plan faces stiff Republican opposition in the US Senate, where Senate Minority Leader Mitch McConnell (R-Kentucky) has the votes to kill it.
What is Procore?
Procore (PCOR) offers a wide variety of construction management apps. Procore apps include project management, project financial, quality & safety, design coordination, invoice management, and bid management solutions.
In addition, Procore claims is software integrates with over 300 other apps. Applications, Procore integrates with include Microsoft Project, Zoom, Sage 100, Oracle Primavera P6, SmartSheets, and Bluebean.
Procore claims its cloud-based platform manages over one million projects. The Procore Platform connects project managers, architects, financial professionals, the owner, and the general contractor through apps and wireless devices. In addition, Procore offers an app marketplace and Procore Analytics to increase contractors capabilities.
Can Procore Make Money?
Procore Inc. (PCOR) loses money. For instance, Procore reported a quarterly operating loss of -$12.86 million on 31 March 2021.
In contrast, Procore’s quarterly gross profit grew from $74.34 million on 30 June 2020 to $93.58 million on 31 March 2021. Plus, the quarterly revenues rose from $92.34 million on 31 March 2020 to $113.94 million on 31 March 2021. Stockrow does not list a quarterly operating income before March 2021 because PCOR only started trading in May 2020.
Procore reported a quarterly operating cash flow of $23.03 million and an ending cash flow of $417.11 million on 31 March 2021. No cash flow numbers for Procore from before March 2021 are available.
Procore borrowed some money. It reported a quarterly financing flow of $16.04 million on 31 March 2021. Procore reported $821.58 million in total debt on 31 March 2021, the total debt fell from $829.39 million on 31 December 2020.
How Much Growth is Procore capable of?
I think Procore’s principal attraction to investor is as a growth stock. Notably, Stockrow estimates Procore’s revenue growth rate was 23.39% in the quarter ending on 31 March 2021.
Procore is growing. Its cash and short-term investments rose from $380.15 million on 31 December 2020 to $413.76 million on 31 March 2021. Similarly, the Total Assets rose from $820.77 million on 31 December 2020 to $835.27 million on 31 March 2021.
Yes, Procore (PCOR) is growing but I think Mr. Market grossly overvalues its stock. I see nothing in Procore’s financial data that justifies the $95.59 Mr. Market paid for it on 14 July 2021.
I advise investors to avoid Procore because it makes almost no money. In the final analysis, I conclude Procore is not a value investment.
Originally published at https://marketmadhouse.com on July 14, 2021.