DISCLAIMER: This note is intended for US recipients only and, in particular, is not directed at, nor intended to be relied upon by any UK recipients. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Cestrian Capital Research, Inc., its employees, agents or affiliates, including the author of this note, or related persons, may have a position in any stocks, security, or financial instrument referenced in this note. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note’s date of publication and are subject to change without notice. Companies referenced in this note or their employees or affiliates may be customers of Cestrian Capital Research, Inc. Cestrian Capital Research, Inc. values both its independence and transparency and does not believe that this presents a material potential conflict of interest or impacts the content of its research or publications.
Will MongoDB Reach Its Former Glory?
When it comes to the stock market, we all make wrong calls sometimes. But who cares? We are hitting more right notes than wrong, and that’s what matters the most. Let’s take a look at MongoDB (NASDAQ:MDB) and the journey of its stock in the past year or so, from ‘Buy’ calls to ‘Sell’ calls, and how it measures up against the S&P 500.
Prior Cestrian Capital Research MDB Ratings
The question now is, has MongoDB stock peaked, or is there more room to soar?
Let’s start by looking at the company’s fundamental performance.
Is MongoDB’s Financial Performance Strong?
The company’s Q2 of FY1/24 was exceptional, with revenue growing by 40% for the quarter compared to the same quarter last year. The company’s Q3 guidance may appear weak, indicating a significant slowdown in growth. However, we anticipate a beat, albeit possibly a modest one.
Gross margins hit record highs of 75% in the quarter and stood at 74% on a TTM basis. TTM EBITDA margins are close to 11% now, and the company’s cash flow has been positive for two successive quarters, a significant turning point for latecomer investors.
With a strong balance sheet boasting $760m of net cash, MongoDB is in a secure enough position.
Now, onto the company’s valuation?
Are MongoDB’s Valuation Multiples Attractive?
At 18x TTM revenue, the company’s valuation may not seem compelling, considering the TTM revenue growth is at 37% with a projected drop to 31% next quarter. However, stocks like this often show truly extravagant multiples before it’s time to walk away, and MongoDB has not reached that stage yet.
Perhaps, the answer lies in the stock chart – our Buy and Sell calls were technical rather than fundamental.
How Does MongoDB’s Technical Analysis Stack Up?
We use a slightly unconventional method to gauge this. The stock tends to find support at the .786 Fibonacci retrace of the move from the notional zero to the all-time high. Projecting from the Wave 2 low, we might anticipate a Wave 3 that could terminate somewhere between $592 to possibly $1093.
Wave Three targets may seem far-fetched initially, but stock charts are essential to remove emotional influences.
We believe that the current bull market is set to continue. If the Nasdaq peaks next year, MDB could reach all-time highs.
What Is MongoDB’s Stock Rating?
Our personal accounts urge caution. The fundamentals are good, but there’s little revenue visibility in the business model. The valuation is pricy, and the stock chart doesn’t indicate a strong buy signal as it did previously. We took quick gains earlier this year and have no plans to re-enter the stock, as there are better investments to consider.
So, the rating? We believe a ‘Hold’ is a reasonable stance, or as we call it in our personal accounts, ‘Do Nothing!’
We welcome all questions, comments, and objections – fire away in the comments below. We promise to read them all and respond promptly.
Cestrian Capital Research, Inc – 20 November 2023.