Baron Funds, an investment management company, released its “Baron Discovery Fund” third quarter 2022 investor letter. A copy of the same can be downloaded here. Compared to the Russell 2000 Growth Index benchmark, which was slightly positive, the fund (institutional shares) was flat in the third quarter. In addition, please check the fund’s top five holdings to know its best picks in 2022.
In the third-quarter letter, Baron Funds discussed stocks like Smartsheet Inc. (NYSE:SMAR). Headquartered in Bellevue, Washington, Smartsheet Inc. (NYSE:SMAR) is a cloud-based enterprise platform. On October 28, 2022, Smartsheet Inc. (NYSE:SMAR) stock closed at $34.85 per share. One-month return of Smartsheet Inc. (NYSE:SMAR) was -1.43% and its shares lost 49.50% of their value over the last 52 weeks. Smartsheet Inc. (NYSE:SMAR) has a market capitalization of $4.551 billion.
Baron Funds made the following comment about Smartsheet Inc. (NYSE:SMAR) in its Q3 2022 investor letter:
“This quarter, we initiated a position in Smartsheet Inc. (NYSE:SMAR) The company provides a cloud-based collaboration and work management software platform that customers use to plan, visualize, manage, and automate business projects. More than 11 million users across 100,000 organizations use Smartsheet to collaborate on projects like new store openings, marketing campaigns, IT system implementations, and merger integrations. The software enables users to exchange data with a variety of third-party systems; invite collaborators from inside and outside the organization to share content and communicate; track project progress and resource utilization; and automate repetitive workflows such as budget approvals. Smartsheet replaces disjointed tools and processes traditionally used to manage projects, such as spreadsheets, emails, and whiteboards.
While there are many competitors in the collaboration space, Smartsheet is differentiated by its ability to serve large enterprise clients that have tens of thousands of users, more complex projects, and stricter IT security and compliance requirements. Smartsheet is also differentiated by its premium add-on products such as Control Center (project portfolio management software), Brandfolder (software used to edit and distribute digital content), and Data Shuttle (pipelines that connect Smartsheet with large-scale data stores like Enterprise Resource Planning systems). Collectively, these premium products account for 28% of annual recurring revenue and are growing north of 80%. By growing its user footprint across departments and cross-selling its premium products, Smartsheet has maintained a leading dollar-based net retention rate (growth in revenue across existing customers) that has averaged 130% over the last several years, and its average annual contract value per customer has more than tripled since 2019. We think there is further room to penetrate existing customers and see a long runway for growth ahead. The stock is trading at just over 4 times 2023 estimated revenue, which is a discount relative to other software peers growing revenue north of 35% with near break-even free-cash-flow margins.”
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Smartsheet Inc. (NYSE:SMAR) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 48 hedge fund portfolios held Smartsheet Inc. (NYSE:SMAR) at the end of the second quarter which was 45 in the previous quarter.
We discussed Smartsheet Inc. (NYSE:SMAR) in another article and shared the stock picks of Eduardo Costa’s Calixto Global Investors. In addition, please check out our hedge fund investor letters Q3 2022 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
