Shift has 3,308 engineers as permanent employees as of the end of February, up more than 14-fold from 228 at the end of November 2015. The company acquired at least 14 firms during that period.
Increasing engineers leads directly to revenue growth because it enables the company to do more business, according to Go Saito, an analyst at Credit Suisse Group AG who initiated coverage on the stock in February with an outperform rating.
“Sales can be derived by multiplying the number of engineers and the unit price for engineers,” Saito wrote in a report that month. “The company has already created a framework for the skills development of engineers, enabling it to cultivate high-quality human resources.”
Revenue rose to 28.7 billion yen in the 12 months ended August 2020, more than triple the level three years earlier. Profit increased to 1.6 billion yen, compared to 208 million yen three years before. Shift forecasts that sales will jump to a record 45 billion yen this fiscal year.
Software engineers are underpaid in Japan compared to the U.S. and there’s a shortage of them, according to Saito. That’s one reason why Shift’s model of outsourcing software testing works, he said.
“We’re the biggest in Japan in this area,” Tange said. “I do see revenue reaching 100 billion yen,” he said, referring to the company’s goal for the fiscal year ending August 2025.
Shift’s soaring shares haven’t been immune to pullbacks. They’ve fallen about 22% from a record in October as investors sold high-growth technology stocks. Even after the drop, the company trades at about 87 times estimated earnings.
For veteran investor Mitsushige Akino, the stock may see more volatility in coming months and could fall in market downturns. But its “fundamentals are solid and Shift is making progress on the vision it laid out,” the senior executive officer at Ichiyoshi Asset Management Co. said. “It won’t be strange to see more buying of these types of shares if investors focus once more on growth stocks.”
Credit Suisse’s Saito says the key will be whether Shift is able to continue to increase its number of engineers.
Whether that will happen remains to be seen, but Tange, at least, isn’t short of confidence.
“We’re just getting started,” he said.
—With assistance from Miwako Ono.
This article was provided by Bloomberg News.