Why these tech stocks are soaring

The biggest gainers on Wednesday were technology stocks. monday.com (NASDAQ:MNDY) soared more than 24% during the trading day.

The company, which produces customer relationship management (CRM) software to help businesses manage their workflow, was still up about 19% in afternoon trading at about $216 per share. Monday.com stock soared on the back of an explosive earnings report and better-than-expected guidance for the coming quarters.

Let’s see if the stock is still buying after this big surge.

great progress

The company launched as Dapulse in 2012 and then changed its name to Monday.com in 2017. It went public in 2021, and its stock price has been quite volatile, surging 40% in 2021, plummeting 60% in 2022, and surging 54% in 2023. .

Putting this volatility aside, what’s impressive is that Mondays are already profitable. This is no small task for many tech startups.

First-quarter results released Wednesday demonstrate the company’s rapid growth. Sales on Monday were $217 million, up 34% from a year ago. Operating expenses rose 18% to $198 million, resulting in an operating loss of $5 million. But that’s significantly better than the $22 million operating loss in the same quarter a year ago. However, non-GAAP operating income on Monday was $21.5 million, up from a loss of $293,000 in the same quarter a year ago.

Overall, the company recorded GAAP net income of $7.1 million, up from a net loss of $14.7 million in the first quarter of 2023. Monday recorded earnings of 14 cents per share in the first quarter, marking its fourth consecutive quarter of profitability.

The company has a net dollar retention rate of 110%, meaning it is effective at upselling as well as retaining customers. Also on Monday, the number of paying customers with 10 or more users increased 18% year over year to 55,515.

This increase resulted in quarterly free cash flow of approximately $90 million, compared to $39 million in the same quarter last year. Free cash flow margin, which converts profits into free cash flow, was 41%, an increase from 24% in the same period last year. This is a key indicator, especially for young companies, as it provides the ability to invest and grow.

“The first quarter marks another big step forward for Monday.com, with strong revenue growth and profitability as well as record free cash flow. These results are supported by recent adjustments to our pricing model, which have so far exceeded our initial expectations,” said Eliran Glazer, Chief Financial Officer at Monday.com.

Analysts Love Mondays

Monday not only shattered analysts’ estimates for the quarter; They also issued better-than-expected guidance.

The company expects second quarter revenue of $226 million to $230 million, which will be 4% to 6% higher than the first quarter and 29% to 31% higher for the second quarter of 2023 and beyond. Additionally, non-GAAP operating income is expected to be in the range of $17 million to $21 million. It will increase year over year, but will decline at the midpoint of the first quarter.

Revenue for the full fiscal year on Monday was expected to increase 29% to 30% compared to fiscal 2023, to $948 million from $942 million. Non-GAAP operating income is expected to increase from $61.6 million in 2023 to $77 million to $83 million. In fiscal 2023, free cash flow is expected to be $238 million to $244 million in fiscal 2024, up from $205 million last year.

Analysts particularly like Jefferies’ Brent Thill, who raised his price target Monday from $250 to $270 and said the company is hitting its targets. The company’s median price target is $250, which is about 37% higher than the current price.

Monday.com shares are up nearly 22% year to date, with Wednesday’s gains accounting for most of that gain. It’s hard not to like Monday’s path, but keep an eye on its valuation as its price-to-sales ratio is 12 and its forward P/E is 91.

Is the stock a buy? I think the valuation is a little too high, but there’s a lot to like, so pay attention.