Here’s why Baron Funds added Smartsheet (SMAR) stocks to its portfolio

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Baron Funds, an investment management firm, has released its Q3 2022 “Baron Discovery Fund” investor letter. A copy of it can be downloaded here. Compared to the benchmark Russell 2000 Growth Index, which was slightly positive, the fund (institutional stocks) was flat in the third quarter. Additionally, please see the fund’s top five holdings for its top picks in 2022.

In the third quarter letter, Baron Funds discussed stocks like Smartsheet Inc. (NYSE:SMAR). Based in Bellevue, Washington, Smartsheet Inc. (NYSE: SMAR) is a cloud-based enterprise platform. On October 28, 2022, Smartsheet Inc. (NYSE: SMAR) stock closed at $34.85 per share. Smartsheet Inc.’s (NYSE:SMAR) one-month return was -1.43% and its shares have lost 49.50% of their value over the past 52 weeks. Smartsheet Inc. (NYSE: SMAR) has a market capitalization of $4.551 billion.

Baron Funds made the following comment about Smartsheet Inc. (NYSE: SMAR) in its Q3 2022 letter to investors:

“This quarter, we initiated a position in Smartsheet Inc. (NYSE: SMAR) The company provides a cloud-based collaboration and work management software platform that customers use to plan, visualize, manage and automate business projects. More than 11 million users in 100,000 organizations use Smartsheet to collaborate on projects such as new store openings, marketing campaigns, IT systems implementations, and merge integrations. The software allows users to exchange data with a variety of third-party systems; invite internal and external collaborators to the organization to share content and communicate; monitor the progress of the project and the use of resources; and automate repetitive workflows such as budget approvals. Smartsheet replaces the disjointed tools and processes traditionally used to manage projects, such as spreadsheets, email, and whiteboards.

While there are many competitors in the collaboration space, Smartsheet differentiates itself by its ability to serve large enterprise customers that have tens of thousands of users, more complex projects, and IT security and compliance requirements. more stringent. Smartsheet is also differentiated by its high-end complementary products such as Control Center (project portfolio management software), Brandfolder (software used to publish and distribute digital content) and Data Shuttle (pipelines that connect Smartsheet to data stores scale such as enterprise resource planning systems). Collectively, these premium products represent 28% of annual recurring revenue and are growing at over 80%. By growing its user footprint across departments and cross-selling its premium products, Smartsheet has maintained a dollar-based net retention rate (revenue growth from existing customers) that has averaged 130% over the past few years. years, and its average annual contract value per customer has more than tripled since 2019. We believe there is still room to penetrate existing customers and see a long streak of growth ahead. The stock trades at just over 4x estimated 2023 revenue, which is a discount to other software peers whose revenue is growing north of 35% with cash flow margins available close to the break-even point.

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Smartsheet Inc. (NYSE: SMAR) is not on our list of the 30 most popular stocks among hedge funds. According to our database, 48 hedge fund portfolios owned Smartsheet Inc. (NYSE:SMAR) at the end of the second quarter, up from 45 in the previous quarter.

We discussed Smartsheet Inc. (NYSE:SMAR) in another article and shared Eduardo Costa’s Calixto Global Investors stock picks. Additionally, please see our Q3 2022 Hedge Fund Investor Letters page for more letters to hedge fund investors and other leading investors.

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Disclosure: none. This article originally appeared on Insider Monkey.

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