We recently compiled a list of the 12 Best Small Cap Tech Stocks to Buy. In this article, we are going to take a look at where BILL Holdings Inc. (NYSE:BILL) stands against the best small-cap tech stocks to buy.
US Inflation and the Anticipated Fed Cuts
Inflation in the US may have reached a 3-year low of 2.6% in August, the lowest rate since March 2021, according to a survey of economists by FactSet. Core inflation, excluding food and energy prices, is believed to have remained at 3.2%.
Inflation peaked at a 4-decade high of 9.1% in June 2022 as the economy rebounded rapidly from the pandemic recession. The Fed responded with 11 rate hikes in 2022 and 2023, raising its key rate to a 23-year high and significantly increasing borrowing costs across the economy. The easing of inflation may pave the way for the Fed to start cutting interest rates next week.
AP News reported that Fed officials think that inflation is steadily declining towards their 2% target. Reducing the Fed’s benchmark rate is expected to lower borrowing costs for consumers and businesses. Christopher Waller, a key Fed policymaker, noted that over half of tracked goods and services have seen annual inflation drop below 2.5%.
Craig Johnson, Chief Market Technician at Piper Sandler & Co., and Gene Goldman, Cetera’s CIO, recently came together to discuss the Fed’s interest rate cuts, and stock sector performance.
Gene Goldman expressed that his base case anticipates 3 rate cuts of 25 basis points each, beginning in September. His belief lies in the slowing inflation, a deceleration in economic growth, and the overall resilience of the economy, which he thinks is not as dire as some reports suggest. Goldman noted that while the labor market showed mixed signals, with both positive and negative data, the market’s expectations for deeper rate cuts may be exaggerated. Goldman acknowledged that political uncertainties could also contribute to market fluctuations.
Craig Johnson was also of the opinion that a 25 basis point cut is already anticipated by the market, suggesting that a 50 basis point cut could raise concerns among investors. He believes that a series of 25 basis point cuts would align with their perspective. Craig emphasized the importance of staying calm considering that, historically, October has been a strong month for the markets, with gains observed 86% of the time since 1929.
Johnson acknowledged that while there has been a recent pullback, particularly following the worst week for the markets since March 2023, there has been a rebound with the Nasdaq and S&P showing positive movements. He highlighted the necessity of dissecting the performance of the MAG 7 tech stocks, which he believes are now lagging. Instead, he pointed out that there are promising stocks within the $2 to $10 billion range that demonstrate solid growth potential, both at the top and bottom lines, and appear constructive on the charts.
He noted the Nasdaq’s 0.75% rebound but referred to it as a dead cat bounce, indicating that a more substantial recovery of 8-10% could be on the horizon. He attributed the day’s positive market sentiment to an employment report that exceeded expectations.
Methodology
We used stock screeners to look for companies trading between $1 billion and $10 billion, that’s our definition of small-cap stocks. We sorted our screen by market cap and looked through the top 25 stocks that matched our criteria. We then selected 12 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
BILL Holdings Inc. (NYSE:BILL)
Market Capitalization as of September 11: $5.69 billion
Number of Hedge Fund Holders: 45
BILL Holdings Inc. (NYSE:BILL) provides financial automation software for small and midsize businesses worldwide, offering a cloud-based platform that helps businesses streamline their financial operations, including invoicing, payments, expense management, and more, helping businesses save time and money.
In the fiscal full year 2024, the network members increased to 7.1 million, up 21% year-over-year as the company further built platform capabilities for its suppliers. It served nearly half a million businesses this year.
2024 featured the launch of a new platform that combines billing and expense management solutions. It has data and analytics tools to help businesses understand their cash flow and uses AI to make the process user-friendly. It also partnered with Xero to offer onboarding and bill payment solutions to its customers.
At the end of fiscal 2024, the company was held by 45 hedge funds. The highest stake amounts to $181,792,786 by Abdiel Capital Advisors. While concluding this fiscal year, the management announced that the board authorized a new $300 million share repurchase program.
The company’s total revenue for the fiscal full year 2024 was $1.3 billion, up 22% year-over-year and core revenue exceeded $1 billion for the first time, serving nearly half a million businesses. In FQ4 2024 alone, it generated $343.67 million in revenue, recording an improvement of 16.11% year-over-year.
This is a leading financial automation platform that’s helping businesses streamline their operations. It’s a valuable tool for accounting firms and is driving growth in client advisory practices. With BILL Holdings Inc. (NYSE:BILL), company clients can stay ahead of the competition, all while positioning the company itself for strong growth.
Parnassus Mid Cap Fund stated the following regarding BILL Holdings, Inc. (NYSE:BILL) in its Q2 2024 investor letter:
“During the quarter, we increased our overweight allocation to the Information Technology sector. In the Software industry, we initiated a new position in BILL Holdings, Inc. (NYSE:BILL), which runs leading payments platform Bill.com. BILL presented an opportunity to own a category-leading SMB-focused payments automation platform (Bill.com) at a historically attractive valuation. We believe the market overextrapolated near-term cyclical growth headwinds and underestimated the company’s long-term secular growth opportunity.”
Overall BILL ranks 8th on our list of the best small-cap tech stocks to buy. While we acknowledge the potential of BILL as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than the stocks on our list but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
