StreetSweeper Sees 'Ugly' Decline Coming For Globant - Globant (NYSE:GLOB)

Globant SA GLOB may be in for some volatility, and the potential drop could be down to $17/share.

"Globant S.A. is living proof of the old adage, ‘Beauty is only skin deep,'" said StreetSweeper. "Just scratch the surface of this Luxembourg company and you'll find enough Quasimodo-esque characteristics to send this stock running into an ugly, rapid decline."

StreetSweeper defended this position by pointing to "beautiful – and vague" rhetoric used in the company's SEC filings. According to the author, once investors "plow through all that dreamy stuff," a much different company emerges.

'Under Surveillance'

The article highlighted four supporting claims for its hesitant thesis, including:

Downside Risk Confirmed In Recent Earnings: "In the recent fourth quarter/yearly earnings call, Globant reported fourth quarter results were slightly ahead of consensus estimates and 2016 guidance in line with estimates. But key factors behind the results further support downside worries. Globant is having to add employees as it opens new offices, putting more pressure on its operating margins. Those margins have plummeted."

Recurring Revenue Is Limited: "Though it has attracted customers such as Coca-Cola and LAN Airlines, Globant must operate within an atmosphere of transient customers and short-term contracts. What happens is that Globant wins these one-time projects but once they're done, they're done.

Related Link: BWS Financial Initiates Coverage On Globant At Sell</bzrelatedlink.

The Wheel Is Being Reinvented: "[T]he short-term nature of the technology services business is forcing Globant to find new customer after new customer. Unfortunately, this constant grinding away each day to reinvent the wheel is beginning to show on the company. Globant says so itself […] Meanwhile, Globant's competition is screaming and beating its check like the well-financed gorilla it really is, knocking down hundreds of times greater revenue than Globant."

Competition To The Max: "Globant's competition is growing. That competition comes from literally thousands of outsourcing companies working across the globle."

In addition to the aforementioned concerns, StreetSweeper also bolsters its thesis by pointing out an initially deceiving claim, "These additional operating costs were hidden by the devaluation of the peso in Argentina, where the vast majority of Globant's workers are based." After this, a transcript between Citi's Ashwin Shirvaikar and Globant's CFO Alejandro Scannapieco followed, in which "management's comments – indicating the devalued peso will boost profit – supports the indication that costs are rising and will continue to rise."

Furthermore, analysts all along the Street have become disenchanted with the issue. "The glitz is gone," StreetSweeper proclaimed, "While there have been buy ratings, BWS Financial initiated coverage of Globant on Feb. 8 with an unusual ‘Sell.' In fact, BWS, which typically goes long, warns there is no room for error with Globant."

In conclusion, StreetSweeper projects a drop to $17/share, "still an exceptionally fair valuation for no-longer-glitzy Globant."

At time of writing, Globant was up 3.16 percent at $30.98.

Market News and Data brought to you by Benzinga APIs