MNDY - monday.com: Giving Shareholders The Blues

Summary

• Today, we take our first look at application developer monday.com.
• Despite strong revenue growth and positive analyst firm opinions on the company, the stock has been in free fall since late 2021.
• Time to buy the dip? An investment analysis follows in the paragraphs below.

Monday is the yardstick against which all that is unpleasant is measured ."? Lou Brutus

Today, we put monday.com Ltd ( MNDY ) in the spotlight for the first time. Despite strong analyst firm support, these shares have absolutely tanked into 'Busted IPO' territory over the past year. Oversold now or a falling knife that continues to deserve to be avoided? An analysis follows in the paragraphs below.

Company Overview:

monday.com is based in Tel Aviv, Israel. The company develops software applications for use across the globe. These include Work OS, a cloud-based visual work operating system that consists of modular building blocks used and assembled to create software applications and work management tools.

The company's offerings are meant to allow users to gain visibility and control across the following myriad of different types of workflows.

Currently, this midcap stock trades just above eighty bucks a share and sports an approximate market capitalization of $3.65 billion.

Second Quarter Results:

On August 8th, the company posted second quarter numbers . The company had a non-GAAP loss of 33 cents a share, which was vastly above expectations calling for a 75 cents a share loss. Revenues rose 75% on a year-over-year basis to $123.7 million, around $5 million above the consensus.

The company saw progress on multiple fronts during the quarter. The number of paying accounts from new monday Work OS products surpassed 1,000 for the first time ever during the quarter. In addition, the number of customers with more than $50,000 ARR grew 147% year-over-year. Management also boosted full year FY2022 sales guidance by approximately $5 million over the consensus to $130 million to $131 million.

Analyst Commentary & Balance Sheet:

Over the past two months, eight analyst firms, including Piper Sandler (PIPR) and Citigroup (C), have reissued/initiated Buy or Outperform ratings on MNDY. Several did contain significant downward price target revisions. Price targets range from $120 to $180 a share. Here is the commentary around monday.com by Loop Capital on September 12th.

In short, MNDY has built an innovative, simple-to-use platform that supports a seemingly limitless number of use cases, is one of the best-branded vendors in the rapidly growing market for digital teamwork tools and low-code/no-code platforms, goes to market with a beefed-up sales engine, and has a solid financial foundation to drive continued growth ."

Approximately 18% of the outstanding float is currently held short. The company ended the second quarter with just over $830 million of cash and marketable securities on its balance sheet against no long-term debt. The company had a GAAP operating loss of $46.2 million in the quarter.

Verdict:

The current analyst firm consensus has the company losing approximately $2.40 a share in FY2022 even as revenues surge just over 60% on a year-over-year basis to just north of $500 million. Sales growth is projected to be cut nearly in half in FY2023 as losses fall to around $1.95 a share.

monday.com seems like a good company that is executing well. The firm has done a commendable job rapidly building out its capabilities over the years. However, the stock has a couple of issues for prospective investors even after its big fall. First, the company is unlikely to be profitable for many years. Fortunately, it is not likely to have to address capital market in the foreseeable future, given the company's fortress balance sheet.

The shares are still not cheap, given projected net losses far out on the horizon. The equity trades at more than seven times this year's revenues. Sales growth is expected to fall substantially in FY2023 as the company has to grow off a significantly higher base. Not to mention a fast slowing global economy and a dollar that has appreciated by some 15% so far in 2022.

However, the biggest problem the stock has is this is no longer a T.I.N.A. (There is no alternative) market with the yields on the 'risk-free' two-year treasury bond topping four percent. The much higher interest rates in 2022 has led to much lower valuations using a DCF model. This has pummeled growth names, especially unprofitable ones, throughout 2022. This is likely to continue to be the case until interest rates peak. Therefore, I would avoid monday.com and similar names until that occurs. New data points from third quarter results should be out shortly as well.

The fool doth think he is wise, but the wise man knows himself to be a fool ."? William Shakespeare

For further details see: