Why I Bought Envestnet Inc (NYSE:ENV)

Envestnet Inc (NYSE:ENV)'s outlook is one of buoyant sentiment as it continues to post exciting top-line revenue growth. I've written a brief commentary on the key things you'd need to believe in order to be long ENV.

Envestnet, Inc., together with its subsidiaries, provides financial and wealth management software and services in the United States and internationally. Started in 1999, it operates in United States and is recently valued at US$2.62B.

The company is growing incredibly fast, with a year-on-year revenue growth of 18.25% over the past financial year , and a net income growth of 94.10%. Since 2013, sales has risen 27.26%, concurrent with larger capital expenditure, which most recently reached US$14.95M. ENV has been reinvesting more into the business, leading to expected return on investment of 17.93% in the next three years, according to the consensus of broker analysts covering the stock. Net income is expected to increase to US$15.82M in the upcoming year, and over the next five years, earnings are expected to rise at an annual rate of 70.67% on average, compared to the industry average growth of 18.16%. These numbers tell me that ENV has a robust history of delivering profit to shareholders, with a disciplined approach to reinvesting into the company, and a bright future relative to its competitors in the industry.

ENV's financial status is a key element to determine whether or not it is a risky investment - a key aspect most investors overlook when they focus too much on growth. Envestnet's balance sheet is healthy, with high levels of cash generated from its core operating activities relative to 0.45x debt. Generally, anything above a fifth of debt is considered prudent because the company is making enough money to pay down its debt principal over time. Although its debt level relative to equity is high at 55.00%, I don't see this as much of a risk given that the company matches its debt level with the ability to produce cash. However, one red flag is that its EBIT was not able to sufficiently cover its interest payment, with a cover of 1.23x. This is a short-term issue, and not the be-all-and-end-all for ENV. There's still room for improvement on the capital management side of things, but overall its strong level of cash somewhat alleviates my doubts around its leverage and interest coverage, increasing my conviction of the sustainability of the business going forward. A reason I like ENV as a business is its low level of fixed assets on its balance sheet (4.17% of total assets) . When I think about the worst-case scenario in order to assess the downside, such as a downturn or bankruptcy, physical assets and inventory will be hard to liquidate and redistribute back to investors. ENV has virtually no fixed assets, which minimizes its downside risk.

The current share price for ENV is US$58.25. At 45.38 million shares, that's a US$2.62B market cap, which is too high compared to its peers based on its industry and adjusted for its asset level. Currently, it's overvalued by 50.52%, with a PB ratio of 5.97x vs. the industry average of 3.97x.

ENV has a strong investment case. The stock is appealing because of its strong fundamentals - financial health, future outlook and track record. However, at its current share price, right now may not be the best time to invest. For all the charts illustrating this analysis, take a look at the Simply Wall St platform, which is where I've taken my data from.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.