During the decade that ended at the start of 2020, the FTSE 100 index grew by 41.5%. During the same period, the NASDAQ 100 was up 372%. The US index was significantly buoyed by the rise of the ‘FAANG’ tech stocks – Facebook, Amazon, Apple, Netflix and Alphabet – as technology became omnipresent in everyday life.
The disparity between the performance of UK and US stocks came into focus again last month, when Jason Kingdon, Chairman and CEO of Blue Prism Group (LSE: PRSM), said that the artificial intelligence company would be worth between two and five times more if it was listed in the US, and that its share price would also be less volatile. Kingdon also raised the prospect of Blue Prism ditching its London Stock Exchange listing and moving instead to the US markets, because British investors did not have enough ‘understanding’ of tech.
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Kingdom’s frustration was not entirely unjustified. Blue Prism shares had just fallen by 25% after the company reported its fifth year in a row of 40%+ growth selling its AI-powered robotic process automation software to customers in over 170 countries including eBay, Siemens and John Lewis. Kingdon added to his frustration that investors in the UK lacked “the ability to be able to look at a tech company and judge a good one from a bad one”.
Right now, Blue Prism is trading at 1,303p, its lowest since October 2020. The 52-week range is very wide: the stock traded at 795p one year ago and hit a high of 1,900p in January. What is notable is that despite the constant peaks and troughs, the 60-day moving average shows that the price has consistently drifted upward since June 2020. If this trend continues, the price could well drift up another 45% to meet its 52-week high once again and might even continue toward its September 2018 high of 2,560p, a 96% increase.
That alone seems like a very attractive prospect. But is my sentiment that there is a potential 96% upside being too cautious? Am I exhibiting “UK investor” thinking by not advocating for the 500% price increase that Kingdon is adamant would be the ‘correct’ value for Blue Prism?
That depends on whether you think that the UK is too cheap – or that the US is too expensive. In the US, the S&P index is trading at x20 earnings and yielding 1.5% according to Bloomberg. This compares with the UK’s FTSE 100 at x12.8 earnings and a yield of 3.2%. The conundrum goes deeper too, because the US figures are highly distorted by a market that contains titanic fast-growth technology stocks trading on very high earnings multiples.
Will the FAANGS tech stocks continue to dominate in this way? Exxon was number one in the index in 2013 and is 28th today. IBM was number one in 1985 and is 67th today. General Electric was number one in 2000 but is 73rd today by market value. The only thing that we can conclude from this is that the US markets rotate their stocks much quicker than the UK market, which one could argue means that the FAANGS could fall if US tech stocks are in a bubble. By contrast, whilst some analysts claim that US tech stocks are in a frothy bubble that will eventually burst, other evidence suggests that the high return on invested capital companies have a tendency to stay as such.
So, what does this all mean for Blue Prism? Jason Kingdon would be rightly outraged that my analysis has thus far completely ignored the intrinsic value and potential of its technology in a world that is heading fast into omnipresent AI and automation (a subject that is extremely close to my heart). He is right that to base an investment calculus on such a shallow analysis of the amazing technology that Blue Prism has, is ignorance.
So, let me say that I firmly believe that omnipresent artificial intelligence and automation will add $150 trillion to the global economy in the next five years. And, put simply, I am unequivocal that Blue Prism is a clear market leader in enabling enterprises in over 170 countries to unlock the benefits of this oncoming artificial intelligence revolution.
Should Blue Prism’s stock market value be 45% to 96% higher than it is today? Yes, I believe so. Will it get there in the coming months? Almost certainly, in my view. Could it be worth 500% more than it is today if we map it against similar US stocks – or what that be irrational exuberance? The answer is that Blue Prism probably should and could attain that value, but the fact that Blue Prism is likely undervalued compared to US peers actually makes it a sound investment to me. Whether the upside potential of Blue Prism is 45% or 500%, the only way is up for its stock price.