Wall Street, it has long been said, is both voting and weighing machine.
To break that down a bit, there are short-term popularity contests (that would be the voting machine aspect) that hinge on new technologies, the promise of disruption, the changing of the old guard.
In the last few years, we’ve certainly seen a fair share of disruption, promised by everything from cryptocurrencies to working from home as the new normal.
But over the longer term, there’s also the weighing of a company’s position within its chosen vertical, where its earnings and cash flow become paramount.
At first glance, the Connected Economy 100™ (CE100™) Index may be seem to be populated by companies that are still being “voted” upon by investors. They are younger companies with a “story” and some top-line torque, and it may seem like their shares trade at the mercy of fickle retail traders, and thus are volatile from one day to the next. But dig a little deeper, and the stories intersect with tangible business metrics, with go-to-market strategies that show some segments more crowded than others.
As spotlighted in the initial launch of the CE100™, where we’ve begun tracking publicly traded companies that are at the vanguard of the digital transformation, the lines between what connects us in the physical and digital worlds are becoming a bit blurred, so that commerce and leisure and even tracking one’s physical health are all tied together, with devices such as the mobile phone as the central glue that brings it all together, across 11 pillars of activity.
The Most Populous Pillars
At a high level, we found the CE100™ Index has consistently outperformed the Dow Jones Industrial Average, Nasdaq and the S&P 500 from 2017 to 2021.
Read more: PYMNTS Launches the CE100™ Index — a New Equity Index That Tracks the Digital Transformation
We found that a few firms — Tesla, Nvidia, CrowdStrike, Fiverr and MongoDB — outperformed all of their peers, and we contend that the first two, Tesla and Nvidia, help illustrate just how interconnected some of the themes are. Tesla is at the forefront of the development of the connected car, which transforms transportation, yes, and helps give consumers yet another conduit through which to pay and interact with businesses. Nvidia makes chips — and chips enable connectivity no matter what the activity might be. Security is a critical aspect of the connected economy, too, which may help explain why Crowdstrike has also taken its place among the top performers in the CE100™.
Interestingly, the most densely “populated” segment — at least for now — remains the “enablers” pillar, with 15 companies in that category (Nvidia, and another one of the top five performers in the index, MongoDB, are housed within this pillar). These are the companies that provide the infrastructure — the hardware, the software and the development platforms — that underpin the connectivity, so to speak. We might liken these firms to the “pick and shovel” players of the connected economy. The outperformance for this sector, relative to the benchmarks, is significant. The compound annual growth rate (CAGR) through the past two years has topped 33%, where the broader S&P has been a bit more than 19%.
The next most densely “populated” segment is tied to the “work” segment. If you’re reading this right now, you likely are reading it while working from home, which in itself has been a shift that has been pervasive, and which illustrates just how much we rely on devices and flexibility as we remain connected. That includes the gig economy (where Fiverr is among the top five performers to date).
As time marches on, the voting machines will give way to the weighing machines — and we’ll be there to track all of it as the firms in the CE100™ continue to enable and transform the new ways in which we work, live, shop and pay.