Do you consider revenue in buying stocks despite its consistency?
The CPI figures were better than expected on Tuesday; that is, inflation remains high, but the rate of increase looks to be slowing. The annualized CPI rate for November was 7.1%, compared to the 7.3% prediction, and markets rose as a result.
Then they fell back today, after the Federal Reserve raised interest rates by a half-point, as predicted, but also suggested that rates would have to rise further into next year. Fed Chair Jerome Powell has suggested that interest rates could rise to 5.1% from their current level of 4.25%-4.5%.
The S&P 500 is down 16% year to date, while the NASDAQ is down 29%; with such large falls, many stocks are trading at low share prices, which could mean opportunity.
Keeping this in mind, research was made to identify two stocks that are too cheap to pass up. Essentially, we were looking for 1) equities with a ‘Strong Buy’ analyst consensus and 2) stocks with significant upside potential. Furthermore, each of these equities is selling at a low value. Let us investigate more.
Matterport Technologies, Inc. (MTTR)
Matterport, a spatial data firm that allows clients and consumers to create digital representations of 3D places, is the first beaten-down stock we’ll look at. These immersive, interactive virtual models enable spatial data insights in architectural design, building and construction, and real estate sales. The company manages 8.7 million spaces in 177 countries, generating $152 million in annualized run-rate revenue.
Matterport reported $38 million in revenue in Q3 of 2022, exceeding its previous guidance. This includes $19 million in subscription income and $10 million in service revenue. The latter, services revenue, increased 204% year on year. Matterport reported $495 million in cash and liquid assets on its bank sheet, in addition to significant revenues.
While the company’s top line and cash reserves were solid, non-GAAP EPS fell by 9 cents in the third quarter. This was a larger loss than the year-ago quarter’s 6-cent loss, but it surpassed the 13-cent loss projected and represented a 25% quarter-over-quarter improvement.
In the end, the advantages exceeded the concerns in the eyes of investors, and MTTR shares rose 24% following the earnings release. The gains lasted for a while before the overall bearish trend of the past year took hold again, and the stock is currently down 86% year to date.
This stock is currently too cheap for investors to ignore – and too cheap for analysts to ignore as well. According to Justin Ages, who covers the stock for Berenberg, “we feel shares are attractively priced at current levels considering MTTR’s opportunity to capture share over the long term and increase profitability. Matterport’s end markets are underpenetrated,” the analyst continues, supporting his point of view. We remain optimistic about Matterport’s ability to expand application cases in real estate, architecture, engineering, and other adjacent verticals… The company has built an ecosystem around its products and services, which we believe will ensure its long-term viability.”
Given the disparity between the company’s share performance and its long-term potential, Ages rates MTTR as a Buy, with an $8 price target implying a 189% one-year upside potential.
Matterport has recently received 5 analyst ratings, with a 4 to 1 split favoring Buys over Holds, for a Strong Buy consensus rating. The shares are currently at $2.83, and the average price objective of $6.30 implies a 123% rise over the next year.
WalkMe, Inc. (WKME)
Following that is WalkMe, a Software-as-a-Service (SaaS) firm that provides a digital adoption platform (DAP) to over 2,000 commercial customers, including Walgreens, Twilio, and Adobe. The company’s software is used by approximately 35 million people in 42 countries. The cloud-based platform of WalkMe enables enterprises to speed digital transitions by providing more accurate data measures that drive more effective activities.
The WalkMe product is popular, as evidenced by two important measures in the most recent earnings report for Q3 of 2022: The company added 13 new DAP customers in the quarter, bringing the total to 155, and experienced a 63% increase in annual recurring revenue (ARR) from DAP customers; high-end ARR from enterprise customers with more than 500 employees increased 31% year over year.
The company’s overall sales of $63.4 million were up 25% from the previous year. This includes a 23% year-on-year increase in subscription revenue, which accounted for $56.7 million of the total. Looking ahead, the total ARR increased by 26% from Q3 of 2021 to $254 million.
WalkMe’s non-GAAP diluted EPS loss increased from 13 cents in 3Q21 to 14 cents in the current report. The excellent revenue figures thrilled investors even more, and WalkMe’s stock rose 17% in the immediate wake of the financial report. Nonetheless, WKME is down 51% year to date.
According to JMP analyst Patrick Walravens, this all boils down to a stock that investors should pay closer attention to.
Walravens sees WalkMe as a ‘buying opportunity for several reasons, including 1) the company’s enterprise business, which accounts for 94% of the company’s revenue…; 2) WalkMe is seeing increasing traction with systems integrators and partners…; 3) the company is tightening up spending and driving the company to expect positive free cash flow by 2023…; 4) the company should be FedRAMP Ready in 4Q and FedRAMP Moderate in 1H23…;”
With these positive aspects in mind, Walravens rates WKME as an Outperform (i.e. Buy), with a $19 price objective implying 82% share appreciation over the next year.
The Street agrees with the optimistic outlook here, with 6 Buys and 2 Holds in the last 8 analyst ratings for a Strong Buy consensus. The average price objective for the shares is $13.31, representing a 28% one-year gain from the current trading price of $10.43.
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