r/stocks
Hedge Fund favorite trade long Semis short software is blowing up- I am buying the cheapest software I found
Author is buying ZoomInfo (GTM), arguing it is deeply undervalued at $2.75 with strong FCF, manageable debt, and new AI partnerships.
- Extremely cheap valuation at 5.5x EV/EBTDA and 3x run-rate FCF post-debt repayment.
- Zero bankruptcy risk in the next 30 months with manageable debt maturing in 2030.
- Strategic AI partnerships with Claude and OpenAI to maintain top-line growth and margins.
- Past management made dumb decisions by buying back $1.5bn of stock at high prices.
- Top-line growth is expected to be flat or only marginally higher in a competitive knife fight.
Note: I have a sizable position in ZoomInfo (GTM) and buying every day. Its a very big portion of my net worth, so I am biased. Do your own work. Think the stock will be at $7-$10/sh vs. $2.75 today.
At $2.75/sh you're at $880m Mcap $1.3 debt + $170m cash for an EV of $2bn with TL not maturing until 2030. Trading at 5.5x EV/EBTDA and 6.12x EV/EBIT (2026) both including SBC expense. Our conservative FCF (GAAP) numbers are $309, $324, $366 for 2026-2028, so total of $1bn in levered FCF next 30 months, say 70% of that is used to retire debt, you have a company that is at $1.1bn-ish EV trading at 3x run-rate FCF 18 months out.
Do we think GTM goes bankrupt in 30 months? No chance. Is there downside to our already conservative numbers? Maybe. But check the chart, what's not already priced in?
Buying back $1.5bn of stock in last 3 years at high prices was dumb, although we understand the 'countering the SBC angle'. Now that SBC is tapered, we want them to retire the debt. When we pushed them, mgmt said they're onboard w retiring debt, and their history of $1.5bn stock buyback leaves no doubt that they can pay $700-$1bn of debt. Post-debt pay, EV close to $1.1bn , we would be more than comfortable underwriting 5x EBITDA (including SBC) for a founder led company with significant GAAP FCF and no material debt left at that point, gets us to $7.5/sh, a triple by mid-2027 looking out to 2028.
Story for the next couple years is knife fight to keep topline flat to marginally higher with new partnerships and trim the fat to protect margins. With the recent Claude and OpenAI partnersips, we think they are doing good a job already. https://www.businesswire.com/news/home/20260605707107/en/Claude-Now-Enabled-by-ZoomInfos-GTM-Context-Graph-Powered-by-GTM.AI
Given effectively no chance of bankruptcy or significant impairment in the next 3 years, the company has optionality that is not modelled in our numbers. We would not be surprised if new product/partnership introductions in the next 6 to 12 months compel use to revise our estimates upward. We give no credit to the company for this at our 5x SBC adjusted EBITDA multiple.
We also like the high short interest and low-ish float after factoring in founder's stake (18% owned by two founders and the directors). Unwind of long Semi / short software trade could make this a big winner. DYODD.
Who the fuck is “we”
The royale we, you know the editorial
Bro we hate these kinds of projectionist ahh posts
Good write-up. It does feel like it should re-rate as long as the market clears the technical overhang, which seems to be the case.
trash
Been watching this trade unwind too - semis getting hammered while software names that got obliterated are starting to show some life. GTM at these levels does look pretty compelling from a pure numbers standpoint, especially with teh debt maturity runway they have
That FCF generation capability combined with management's track record of actually returning cash makes this less of a knife catch than most beaten down SaaS names. Just gotta hope they actually execute on debt reduction instead of more dumb buybacks at inflated prices
The unwind happened nearly two months ago...
What does this company even do? Can you give us a bull case for its products and tell us if it has a moat of any kind.
It's a yellowpages for the internet.
Example
https://www.zoominfo.com/people/Austin/Jones
They get revenue when other companies buy data for their CRM.
Ah ok thanks. It definitely feels like a dwindling business model.
I would agree with op they do seem undervalued and the 90% drop they had is excessive. It wouldn't surprise me if they bounce back but I'm not confident enough in that I'd buy shares