Is Samsara stock a buy?

Hi everyone, welcome to Xillion Master Class. This particular episode is going to focus on IoT, specifically Samsara. Xillion is a platform to help you make great financial decisions so that you can be financially independent in 10 years or less. In this master class, held twice a week, we discuss various areas of finance, typically focusing on high-growth companies that have the potential to become household names in 5 to 10 years.

Today, we will cover Samsara. To follow along with all the information discussed in this master class, please visit Xillion. Search for "Xillion" on Google, and we should be the first result. Alternatively, you can go to xillionapp.com and log in. Once logged in, navigate to the product called Analyze. There, you can select any particular stock and see all the proprietary data we have collected, much of which you won’t find anywhere else. Let's search for Samsara.

Samsara builds products that help companies with large fleets of vehicles, such as construction vehicles, trucks, and delivery trucks, manage those assets efficiently. For instance, a friend of mine who runs a trucking company in Southern and Central California uses Samsara to monitor the location, mileage, maintenance needs, and temperature of his refrigerated trucks. Samsara’s technology, including dash cams, helps reduce liability by monitoring driver behavior and ensuring safety.

Think of Samsara as an ERP system for companies with large moving assets, similar to how SAP or Oracle serve major companies. For public transport systems like New York City's bus fleet, Samsara can track all buses in real-time, becoming the default platform for such operations. This is a hallmark of a great company, becoming the platform of choice for a specific market segment.

Let's take a look at some numbers. Samsara is a $20 billion company that went public in 2021. It started in 2015, making it a relatively young company. Despite the fluctuations in its stock price, it has shown significant growth, with a 25% increase year-to-date and a doubling in the last three years. The company’s overall growth rate over the past three years is 90%, which is very high.

The valuation of Samsara is also noteworthy. Its price-to-sales ratio is 12, which is high compared to most of its competitors, indicating its status as a high-growth company. While the price-to-earnings ratio is not as relevant for a young company reinvesting heavily in growth, Samsara’s year-over-year sales growth close to 50% over the last five years is exceptional.

Profitability remains low because Samsara is reinvesting all its earnings into growing the business. However, with gross margins comparable to software companies, Samsara is positioned for significant profitability in the future. Their pricing model, though not transparent, is effective for their market. We have given it a score of 3.5 out of five possible stars for pricing transparency.

In terms of product diversity, Samsara excels. They offer a wide range of products, including video-based safety systems, telematics, and a comprehensive platform for managing large fleets. Their innovation and continuous product launches are driven by their strong leadership. The founders, Sanjit and John, both with strong academic and professional backgrounds, have been working together for decades, first founding Meraki, which was acquired by Cisco, and now Samsara.

Our overall recommendation is to consider adding Samsara to your portfolio for the long term. While we cannot predict short-term stock price movements, the long-term potential of Samsara is significant. With their strong leadership, continuous innovation, and growing market presence, Samsara is poised for substantial growth.

Thank you for tuning into this master class. If you have any questions, feel free to ask now or contact me later. Don't forget to join us for the next master class, where we will explore another high-potential company. We hold these classes every Tuesday and Thursday. Thank you so much for joining.