Work-from-home stocks are set for long-term growth

Equities 5 minutes to read

Peter Garnry

Head of Equity Strategy

Summary:  Covid-19 has led to an acceptance of working from home and altered our behaviour for certain leisure activities and health care checks. In this equity note, we discuss these emerging trends and look at a basket of 13 stocks that could potentially benefit from them. The basket is already up 102% this year, reflecting the large demand from investors.


In our research note ‘Is your portfolio ready for the online future?’ we highlighted a large basket of stocks offering exposure to the rising trend of the online economy. Here, we’ll focus on work-from-home-related stocks and take a look at the outlook for this emerging trend.

The Covid-19 pandemic catapulted society into the future in terms of more flexible working conditions and the ability to work from home. With no good vaccine on the table yet, societies are forced to maintain social distancing, limiting the demand for workers’ presence in the office and changing our habits around health care checks and leisure activities. The table below shows 13 US-based stocks offering exposure to the work-from-home trend, as well as these new leisure and health care activities. It’s not exhaustive, and some may wonder why stocks such as Microsoft (with its Team product) or Facebook, with its video conferencing and Workspace products, are not on the list. The short answer is that we want to highlight the most direct exposure possible and Microsoft and Facebook get the majority of profits from their core businesses in operating systems and online advertising.

NameIndustryMkt. cap. USD mnFCF yld (%)Sales growth (%)
Zoom Video Communications IncSoftware70,8840.50111.2
Slack Technologies IncSoftware19,284-0.1353.4
Dropbox IncSoftware9,7153.9418.5
DocuSign IncSoftware30,8850.1539.2
RingCentral IncSoftware25,2870.0433.7
Citrix Systems IncSoftware17,8813.905.2
Box IncSoftware3,3852.2413.6
Atlassian Corp PLCSoftware45,5581.1935.3
Crowdstrike Holdings IncSoftware22,6320.5488.7
Peloton Interactive IncLeisure Products15,020-1.7780.6
Five9 IncSoftware6,7380.4527.5
Fastly IncIT Services7,549-0.6338.2
Teladoc Health IncHealth Care Technology15,2580.1932.5

Source: Bloomberg and Saxo Group
* FCF yld is free cash flow yield measure by 12-month trailing free cash flow relative to current enterprise value.

The basket of stocks is generally priced above the current general market valuation, with an average free cash flow yield of 0.8%. On the other hand the group is growing fast, with 12-month trailing sales y/y up 44% on an equal-weight basis. Evidence of the faith investors are showing in the work-from-home trend is the total return year-to-date, which comes out at 102% (equal-weight) for this group. The basket of stocks has also significantly outperformed the S&P 500 since 2015. The main question that investors should ask themselves is how likely it is that the trend continues? Mark Zuckerberg recently suggested that half of Facebook’s employees could do their work outside its offices over the next 5-10 years. Twitter has actively adopted an infinity policy on work-from-home making it possible for employees to choose their own working life. Our view is that the work-from-home trend will continue as many companies will allow employees to have mixed working schedules, shifting between being at the office and working from home. This will underpin demand for remote technology solutions over the coming decade.

The key risk for this basket is of course rising interest rates, which could hit valuations hard and thus set in motion a sharp correction in these stocks. With a free cash flow yield of 0.8% the valuation is aggressive and leaves little margin of safety for any deviations for the current discounted trend. The production and quick global rollout of a Covid vaccine is another key risk as it could cause a rollback of the work-from-home trend before it has fully established itself.

Disclaimer

Saxo Capital Markets (Australia) Pty Ltd prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Combined Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Pty Ltd ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide and Product Disclosure Statement to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as CFDs and Margin FX products may result in your losses surpassing your initial deposits. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.
Please click here to view our full disclaimer.