Moon Capital Management, an investment management firm, published its first-quarter 2022 investor letter – a copy of which can be seen here. Stock prices generally continued their decline in the first quarter, with the tech-heavy Nasdaq Composite posting the largest loss among the three major U.S. indices. The fund’s stock portfolio held up well, declining approximately one-half percent. Try to spend some time taking a look at the fund’s top 5 holdings to be informed about their best picks for 2022.
In its Q1 2022 investor letter, Moon Capital Management mentioned MeridianLink, Inc. (NYSE:MLNK) and explained its insights for the company. MeridianLink, Inc. delivered a -2.36% return since the beginning of the year, while its 12-month returns are down by -15.76%. The stock closed at $18.18 per share on April 12, 2022.
Here is what Moon Capital Management has to say about MeridianLink, Inc. in its Q1 2022 investor letter:
“MeridianLink (MLNK) is the country’s leading consumer loan origination software company. While large institutions such as Bank of America have in-house, proprietary systems their lenders use when analyzing the creditworthiness of a potential borrower, MLNK offers a cloud-based system for middle-market banks (such as credit unions, including TVA Employees Credit Union and UT Federal Credit Union.) The company’s products automate workflows for its credit union customers, addressing an area in which these smaller institutions have long suffered a disadvantage when trying to compete with much larger, tier 1 banks.
The company generates ridiculously high margins (50 percent operating margins), yet is less susceptible to pricing pressure and renewal risk because its product becomes embedded in its customers’ workflows. It also doesn’t hurt that its contracts are long-term, with autorenewal provisions and early cancellation penalties.
MeridianLink generated $265 million in revenue in 2021 and essentially ignored covid, growing 35 percent annually from 2019 through 2021.
Given the company’s extraordinary annual retention rate (in excess of 100 percent in dollar terms), we think $300 million in 2022 revenue should be easily attainable. The company expects to generate 48 percent EBITDA margins in 2022, even after a substantial increase in its sales and marketing expenses. This should provide $140 million in EBITDA and more than $100 million in free cash flow.
Our purchase price of $19 a share (approximately 14 times free cash flow) should prove a bargain, as the company is poised to continue to compound free cash flow at healthy rates. We think one of our biggest risks in owning MLNK is that a larger company could see the same bargain that we do and buy it before the market price fully reflects the company’s fair value, which we estimate to be $30 per share.”
Our calculations show that MeridianLink, Inc. (NYSE:MLNK) fell short and didn’t make it on our list of the 30 Most Popular Stocks Among Hedge Funds. MeridianLink was in 10 hedge fund portfolios at the end of the first quarter of 2022, compared to 12 funds in the previous quarter. MeridianLink, Inc. (NYSE:MLNK) delivered a -7.20% return in the past 3 months. You can find other investor letters from hedge funds and prominent investors on our hedge fund investor letters 2022 Q1 page.
Disclosure: None. This article is originally published at Insider Monkey.
