VRT Stock: Why Did Dalio Up his Vertiv Stake by 590%?

Introduction

Vertiv [VRT] is a global tech firm providing end-to-end infrastructure solutions to data centers, communication networks and commercial facilities in more than 130 countries. 

VRT stock has been gaining traction of late, with a 151.6% year-to-date rise to the close on December 17, while Bridgewater Associates’ Ray Dalio increased his holding of the stock by 590.6% in Q3, or 279,000 shares. 

Is VRT set to continue rising, or has it already gone as far as it can go?

What’s New with Vertiv?

Dalio’s interest in VRT stock has been a key point of interest in recent weeks — his stake has skyrocketed to 326,000 shares, with a current value of $39.4m.

Vertiv also announced a first-of-its-kind cooling solution in collaboration with Compass [COMP] on November 18. This, paired with positive Q3 results on October 23, helped the stock jump to all-time highs in November.

Highlights from Q3 include a 19% increase in revenues and 41% increase in operating profit year-over-year. CEO Giordano Albertazzi credited, among other things, the firm’s “unique market position in enabling artificial intelligence (AI)” for continued growth.

Q3 results beat both adjusted earnings and sales estimates, and saw full-year guidance adjusted upwards for both profit and revenue.

VRT Stock: Recent Movements

VRT has been something of a success story this year, despite a period of decline from May to August.

The Vertiv share price has enjoyed a relatively consistent rally since September 6. It saw a particularly sharp jump following the announcement of the Compass collaboration on November 18, soaring 14.57% overnight. 

However, VRT stock is down 14.67% from its 52-week high of $141.45 on November 21, potentially offering an attractive entry point. At the close on December 17, Vertiv stock sat at $120.69, within touching distance of its 50-day moving average (DMA) of $120.42.

How Are Vertiv’s Competitors Faring?

Vertiv is an established name in an industry that continues to reap the rewards of the AI revolution. Sitting alongside the likes of Arm Holdings [ARM] and NXP Semiconductors [NXPI], can VRT hold its own? 

Source: Yahoo Finance

Comparing like-for-like, Vertiv appears to be in a strong position. Arm, a giant of the semiconductor and software design spaces, focuses on the sale of intellectual property rather than physical products. Its 90.05% year-to-date rise pales in comparison to VRT’s success so far.

NXP Semiconductors is more comparable to Vertiv in size, and the two companies compete for clients in some industrial sectors. However, NXPI has had a very turbulent year, being down 0.99% year-to-date and down 24.34% from a 52-week high on July 16. Unlike Vertiv, Q2 and Q3 results for NXP have been lackluster, with earnings and revenue guidance repeatedly failing to match Wall Street’s estimates.

VRT: The Investment Case

Is the stock still a ‘buy’, or have investors missed the chance spotted by Ray Dalio in Q3?

The Bull Case for VRT Stock

With three analysts rating VRT a ‘strong buy’, 14 rating the stock a ‘buy’, only one suggesting investors ‘hold’ and none recommending they ‘sell’, there are several reasons experts are so keen on the stock.

While it is not, in itself, sufficient reason to invest, it is difficult to ignore Ray Dalio’s faith in the stock’s potential. Arguably one of the most well-regarded traders today, Dalio’s portfolio totals $17.9bn, so his stated interest in Vertiv indubitably holds some weight.

In addition, Vertiv has consistently beat earnings estimates this year by between $0.07 and $0.10 per share. 

Internally, the firm seems confident its success will continue, with full-year adjusted profit and revenue guidance rising in Q3, beating forecasts from Wall Street.

Bullish analysts are predicting 2024 profits to grow by 52.73%. If the company is able to match these heady estimates, the future could be bright for VRT stock.

The Bear Case for VRT Stock

That said, the picture is never crystal clear in the investment world. Here are some potential reasons for caution when considering VRT over the coming months.

Discount Cash Flow analysis (DCF) using free cash flow suggests that a fair price for VRT would sit around $75.75, while DCF using net income suggests $69.58 would be a fair price for the stock. Therefore, its closing price on December 17 of $120.69 could be drastically overvalued.

Similarly, its forward P/E ratio of 35.46 does not compare favorably to the wider electrical parts and equipment industry.

While it is important to consider these statistics in light of the wider context, they could be warning signs that the stock is overplayed, rather than a growth play with plenty of room to rise.

Finally, investors need only look to stocks like NXPI to see that the tech hardware space can be incredibly fickle. High competition and macroeconomic factors impacting AI and data centers could leave VRT susceptible to pullbacks should it run into headwinds.

Conclusion

Vertiv is an exciting stock with an impressive growth story so far in 2024. It will have to continue navigating a crowded and competitive space, but its willingness to collaborate to innovate could see it continue to grow.