FA Alpha Daily

The unseen hero of innovation and digital transformation enjoys immense profitability

The current wave of innovation and digital transformation is driving technology companies to do things on a larger scale. Companies need more resources than they now possess as their number of clients and businesses grows. Find out in today’s FA Alpha what TDCX’s full potential is and how it managed to flourish despite these market tendencies.

FA Alpha Daily:
Tuesday Company Specific
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Our world has been evolving and becoming more digital for decades. The pandemic and the “At Home Revolution” just sped up the process.

We are seeing big trends like electrification, automation, artificial intelligence, and the Internet of Things (“IoT”). There is a lot to suggest this is just the beginning.

Of course, the innovation and digital transformation we observe are driven by technology companies. They are scaling up together with these trends.

However, scaling up has its own difficulties. As companies have more businesses and customers, they require more resources than they have.

They need to have scalable and adaptable tech support and customer relations. Building tech support in-house is a bit too much work for most companies. It makes more sense to invest in what you do best, which is your product.

That is where outsourcing companies like TDCX (TDCX) come into play. The company provides outsourced contact center services for technology companies in different regions of the world.

It also helps smaller companies with digital marketing and social media management.

As companies grow their businesses to catch up the innovation, these services are going to become more essential, which means a bigger demand for TDCX.

The company already has a very profitable business. Uniform return on assets (“ROA”) slightly increased from 41% in 2020 to 42% in 2021.

And the company is managing to grow substantially while it’s minting cash. Outsourcing and digital transformations are two powerful trends, and TDCX is at the center of both. That’s why it’s managed to grow double digits in each of the last two years.

Even still, TDCX is only trading at a 10.3x Uniform P/E, showing that the market is not paying attention to it yet.

Booming demand, high growth potential, impressive returns, and a low valuation all combine to earn TDCX a spot as an FA Alpha name.

Throughout financial market history, many of the world’s most successful investors have been candid in their belief that Generally Accepted Accounting Principles (“GAAP”) distort economic reality.

Warren Buffett, for example, once said investors should “concentrate on the world of companies, not arcane accounting mathematics.”

Investors who neglect the very real issues with as-reported accounting can find themselves caught up investing with the crowd, blindly following hot “themes” without a thorough grasp of how to understand the businesses in question.

The only true way to focus on the “world of companies,” as Buffett suggests investors do, is to present a clear picture of how a business operates, something that can only be done by adjusting financial statements to reflect the arbitrary nature of certain accounting rules that leave much to discretion.

The world’s best investors understand the need to make these adjustments, which allows them to focus not on picking out the most popular companies, but rather on looking for great names in sleepy areas that the market isn’t paying much attention to. From there, the goal is to then identify quality companies with significant growth potential at reasonable prices.

That’s exactly what we’ve set out to do with the FA Alpha, our monthly list of 50 companies that rank at the top for quality, high growth, and low valuations.

This list has outperformed the market by 300 basis points per year for over 20 years now, effectively doubling the performance of the market by focusing on the real fundamentals and valuations of companies with our proprietary Uniform Accounting framework.

See for yourself below.

To see the other 49 names on the list, click here.

Best regards,

Joel Litman & Rob Spivey

Chief Investment Strategist &
Director of Research
at Valens Research

Today’s highlight, TDCX Inc. (TDCX) is one of the top stock picks from FA Alpha 50 this month. To see more stock picks like this, become an FA Alpha and get access to FA Alpha 50.

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