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This Software-As-A-Service Gem Is Hiding in Plain Sight

By Brian Withers, Brian Stoffel, and Brian Feroldi – Jul 25, 2021 at 7:12AM

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This up-and-coming SaaS play could be a great investment.

Sometimes there are companies that quietly execute on their plans and grow significantly without too many investors taking notice. Zendesk (ZEN) is one of those stocks that has become a multi-bagger by helping customers manage their customer-service operations digitally, and it's done it without a lot of fanfare or press coverage. On a Motley Fool Live episode recorded on June 30, Fool contributors Brian Feroldi and Brian Stoffel talk about this winning stock and why you might want to check it out.

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Brian Stoffel: The next company I'm going to talk about is one that almost no one talks about. I think that that's a shame because there is a lot to like about it. That company is Zendesk, ticker symbol ZEN. They basically help make sure that a company's customer relationships are managed well. In other words, let's speak the worst possible industry for customer service like the cable industry. What a cable company could do with Zendesk is keep a track of every single interaction I have with my local cable provider, keep notes on what happens, develop a chatbot that can answer my questions. Basically, make it so that I hate them a lot less than I hate them right now. I'm exaggerating a little bit, but that's basically what Zendesk does.

It's really unloved in the Fool universe and I think that's a shame. Just to give you an idea, I personally bought this share, I think just once, a number of years ago. Even though it doesn't get a whole lot of attention here in the Fool universe, this is what it's done since it went public so it's already a 10-bagger. If we go ahead and we look at their revenue, so get rid of this price, we see that their revenue has continued up into the right, relatively unabated because this is a software-as-a-service company.

You sign on and you get Zendesk's support or Zendesk's chat. As your company does better and you need to give more of your employees access to this, you will pay more for it. It is also a company that has been, most of the time, free cash flow positive. They weren't for a little while because they were giving some benefit to customers that were in a pinch during the pandemic, and that's one of the reasons you see it belly out here last year, but it has since recovered.

It's an expensive stock by almost any metric, but really, a stock that has done very well. I'm just throwing it out there because I think it deserves some love here on Motley Fool Live.

Brian Feroldi: Yes. Another company that I have ignored to my own peril because yes, like you said, it basically checks almost every box that I look for in a business but I don't own it.

Brian Withers has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Zendesk. The Motley Fool has a disclosure policy.

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