MSFT - AvePoint May Take Time To Push Higher

2023-11-09 00:28:21 ET

Summary

• Recent developments have resulted in AvePoint's steady stock price increase, driven by expansion in cloud solutions, strategic partnerships, and past acquisitions.
• The company's growth appears to be slowing as it matures, and its current valuation may limit further short to medium-term upside.
• Long term, as businesses move towards the cloud, we see AVPT being a winner with a large TAM, so would be interested in taking a bite if a pullback presents itself.

AvePoint's Upside Could Be Limited At Current Valuation

AvePoint, Inc. ( AVPT ) is a well-known player in the technology sector, offering SAAS migration solutions for Microsoft ( MSFT ) 365 and SharePoint. As investors, it's essential to periodically reassess whether the current valuation of AvePoint's stock aligns with the company's growth potential. Since we last covered the stock it has gone through an over 100% pendulum swing down and then back up. Of late, AvePoint has been on a steady increase and now offers very little further short to medium term upside in our view due to slowing growth ( Figure 1 ) and relative valuation. In this article, we will explore why AvePoint, Inc.'s stock may be a " hold " at its current valuation, considering recent news, valuation metrics, and potential risks.

Figure 1. AvePoint has delivered consistent growth over the last few years but has begun to slow in recent quarters as the company matures

Recently, AvePoint has been actively involved in expanding its portfolio and market reach, showcasing its commitment to innovation and growth resulting in a 100% gain in stock price over the last year. The company has fueled this growth through:

1. Cloud Solutions Expansion: AvePoint has been expanding its cloud SAAS solutions to cater to the evolving needs of businesses using Microsoft 365 and SharePoint. Cloud adoption is a prominent trend in the tech industry, and AvePoint is positioning itself well to benefit from this. With Microsoft ever-expanding its reach, AvePoint will be able to ride these tailwinds for the foreseeable future, as the company has held or increased its outlook over the last two conference calls.

2. Strategic Partnerships: AvePoint has formed strategic partnerships with other tech leaders, such as Microsoft and Salesforce . These collaborations enhance its market position and broaden its customer base.

3. Acquisitions: The company has made several strategic acquisitions ( tyGraph & Essential ) in recent years to complement its product portfolio. Acquiring innovative technology and talent has strengthened AvePoint's competitive advantage and market presence and this is beginning to take shape in the company's financials.

These recent developments signify AvePoint's dynamic approach to growth and adaptation within the tech industry, where cloud solutions and collaboration are of paramount importance and have led to their success. Stepping back now and looking more towards valuation though we, and other analysts, see very little further upside until small caps, and growth stocks again become favorable by the broader market.

Current Valuation

Assessing AvePoint's valuation involves a thorough examination of financial metrics, industry trends, and the company's ongoing growth prospects. The demand for cloud-based solutions, especially in the post-pandemic world, remains strong but has leveled off in recent quarters. AvePoint's focus on cloud services aligns with this industry trend and its growth potential. AvePoint operates in the collaboration and content management sector, and it has the potential to capture a larger share of this market ( Figure 2 ) as more businesses digitize and transition to cloud-based platforms.

Figure 2. The Public Cloud services market is expected to double by 2026, outpacing broader markets and setting AvePoint up for success

This growth has been historically evident and has translated to premium valuations for AVPT. AvePoint has the potential to bring in positive earnings in 2023 which is projected to place them at a price to earnings above a 100x P/E ratio . This is high but will likely decline with rapid earnings growth. Therefore, we believe a better valuation metric for AVPT is price to sales, which comes in ~5.4x FWD P/S, again a little rich. These premium valuations along with rising competitors in the tech industry are crucial in determining its long-term growth potential. We believe Wall Street analysts have a pretty good grasp on AvePoint's relative valuation with price targets set around $8 ( Figure 3 ).

Figure 3. AvePoint will likely see upward revisions from analysts with another good earnings report, but over the short to medium-term view, upside looks to be limited

This reduced medium-term upside is why we place a hold rating on AvePoint at current prices. We believe the company has a strong product and continues to execute well and in turn, downside is limited, but there are better-undervalued buys in the market at their valuation.

Risks

Before making an investment decision, it's vital to consider the potential risks associated with AvePoint, Inc.'s stock. The technology industry is highly competitive and does not provide a lot of barriers to entry, with giants like Microsoft and other well-established players likely able to mirror AVPT's product. AvePoint must continue to differentiate itself and offer unique value propositions to stay ahead and justify its valuation. We do not see another competitor duplicating or overtaking AvePoint's product anytime soon, but a bigger-name tech company could always see the value in the stock and seek to buy out AvePoint before it grows any larger. Another point to ponder is the technology sector can be influenced by rapid changes in technology, shifts in consumer preferences, and economic downturns. These factors can impact AvePoint's performance, one day cloud stocks and big data are in, and the next the money is following AI, which generates volatility and should be weighed in. It's crucial as well to monitor the pace of adoption in the industry. Watching growth rates quarter to quarter and how this matches up with historical valuations is crucial for pricing AvePoint's stock.

AvePoint has very little debt so we do not see cash being an issue which is one reason AVPT has flourished in current high interest rate environments. Macroeconomic challenges ahead should be monitored as the stock is a member of the Russel 2000 and therefore could be drug down by other laggards in the group.

Indubitable Information

"In God we trust. All others must bring data" - Robert Hayden

We continue to strive to deliver facts that influence the movement of stocks in our analysis. Taking this into account for AvePoint can provide some unique points to ponder. AvePoint was founded by Tianyi Jiang, a Microsoft Most Valuable Professional ((MVP)), who has been recognized for expertise in Microsoft technologies and has a global presence. 84% of the company's revenue is reoccurring shielding AVPT from potential downside that other young tech companies face exposure to.

In Summary

In conclusion, AvePoint, Inc. exhibits promising growth potential in a technology landscape dominated by cloud computing, collaboration, and content management solutions. Recent news & developments highlight the company's active efforts to expand its offerings and strategic partnerships, positioning it for future growth, but as the stock rolls on upwards as markets trend towards the bearish side, we believe AvePoint is a hold on valuation concerns.

Ultimately, AvePoint's valuation should be assessed in the context of its ability to capture a larger market share in the growing collaboration and content management sector and its capacity to navigate the competitive landscape. Careful analysis and a long-term perspective are essential for making informed investment decisions in the dynamic world of technology and cloud-based solutions. We would be again interested in the stock if it dips below the $6.5 mark in 2024 as at this point we would expect much more competitive price to earnings & price to sales metrics, but at the moment the growth they are delivering does not align with the cost.

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