Baron Funds, an investment management company, released its “Baron Discovery Fund” second quarter 2024 investor letter. A copy of the letter can be downloaded here. In the second quarter, the fund (Institutional Shares) declined 7.78% underperforming the 2.92% return for the Russell 2000 Growth Index. The lion’s share of negative attribution and 6.52% of negative performance of the fund during the quarter were attributed to the ten worst-performing equities. The firm believes downward movements are more technically tied to macroeconomic issues and the trading environment and could quickly revert. In addition, please check the fund’s top five holdings to know its best picks in 2024.
Baron Discovery Fund highlighted stocks like Procore Technologies, Inc. (NYSE:PCOR) in the second quarter 2024 investor letter. Based in Carpinteria, California, Procore Technologies, Inc. (NYSE:PCOR) provides a cloud-based construction management platform and related software products. The one-month return of Procore Technologies, Inc. (NYSE:PCOR) was -12.25%, and its shares lost 5.78% of their value over the last 52 weeks. On August 23, 2024, Procore Technologies, Inc. (NYSE:PCOR) stock closed at $61.40 per share with a market capitalization of $9.068 billion.
Baron Discovery Fund stated the following regarding Procore Technologies, Inc. (NYSE:PCOR) in its Q2 2024 investor letter:
“We initiated an investment in Procore Technologies, Inc. (NYSE:PCOR) during the quarter. Founded in 2002, Procore provides cloud-based construction management software that helps general contractors, subcontractors, and asset owners manage every step of the construction process. Procore’s product suite includes project execution (storing and updating blueprints, designs, work orders and project schedules in a single system of record), pre-construction (managing bids, permitting, and approvals), workforce management (scheduling worker hours and recording safety compliance), financial management (budgeting and invoicing), and data analytics. Together these products help contractors execute projects more efficiently, plan more accurately, avoid costly rework, improve worker safety, and generate better margins. This has led to exceptionally low customer churn.
Procore serves a large and growing addressable market – annual construction volume exceeds $2 trillion in the U.S. alone – that is still in the early innings of digitization and technology adoption. The company has a leading market share in the sector, with more than 16,500 construction firms and asset owners using its software to manage billions of dollars of annual project volume. Yet Procore is still only 12% penetrated in terms of U.S. construction volume and 2% penetrated internationally. We believe the company has several competitive advantages that will drive further share capture and strong growth. First, Procore is the only cloud-native technology vendor that addresses all stages of the project life cycle with a single, integrated interface and data model. Second, Procore was the first vendor to price its platform using a “take-rate” model, charging a percentage fee against its customers’ total construction volume. Compared to seat-based license models offered by many competitors, this approach has encouraged far more industry practitioners to trial and use Procore products. As of last year, over 500,000 collaborator companies were interacting with its product, driving a strong pipeline for new customer wins.
We see a long runway for growth through new customer additions and expansion in existing accounts. The company has maintained low to mid-double-digit revenue expansion rates for existing customers by managing more project volume and by cross-selling additional product modules. Recent product innovations like Procore Pay (managing payments for the various vendors and subcontractors on a given project) and geospatial mapping (for larger civil engineering projects) should improve the company’s wallet share over time. Procore is cash flow positive today and has been increasing its margins meaningfully over the past two years. We think the business can continue to grow at a healthy rate while further expanding free cash flow margins to north of 20% as it benefits from market share capture, higher take rates, and operating leverage. This should lead to good earnings growth and bode well for the stock long term.”
A computer monitor displaying cloud-based construction management platform software.
Procore Technologies, Inc. (NYSE:PCOR) is not on our list of 31 Most Popular Stocks Among Hedge Funds. As per our database, 47 hedge fund portfolios held Procore Technologies, Inc. (NYSE:PCOR) at the end of the second quarter which was 45 in the previous quarter. The second-quarter revenue of Procore Technologies, Inc. (NYSE:PCOR) was $284 million, which represents a 24% increase year over year. While we acknowledge the potential of Procore Technologies, Inc. (NYSE:PCOR) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
In another article, we discussed Procore Technologies, Inc. (NYSE:PCOR) and shared Baron Asset Fund’s views on the company in the previous quarter. In addition, please check out our hedge fund investor letters Q2 2024 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.