The technology sector is having a fantastic year, with the Nasdaq Composite(NASDAQINDEX: ^IXIC) up 30% year to date. Many of the biggest stocks in the technology sector are doing even better Nvidiawhich increased by 209%.
But not every technology stock is participating in the rally. Werkiva(NYSE: WK)for example, offers a unique portfolio of software products to help companies streamline data aggregation and reporting, which are increasingly important business functions. The stock price is down 4% this year, and down 42% from its all-time high reached during the 2021 tech frenzy.
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The underperformance of Workiva stock hasn’t deterred Wall Street. The majority of analysts followed suit The Wall Street Journal have given it the highest possible Buy rating, and none recommend Selling. The business is growing nicely and the shares are currently trading at an attractive valuation. So this is why investors would want to follow the analysts’ lead.
Image source: Getty Images.
Technologies such as cloud computing help companies of all sizes conduct their operations online. That allows them to access a global customer base and leverage remote labor, which are big positives. However, it also means that companies have to use dozens or even hundreds of digital applications every day, leading to fragmented workflows.
That creates a nightmare for managers when it comes to monitoring progress, collecting data and compiling reports. Workiva solves that problem with its cloud-based platform, which connects to virtually any leading productivity and storage application, merging their data into one dashboard.
That means managers don’t have to track data through every single piece of software, regardless of whether employees use it Alphabet‘s Google Drive, Microsoft Excel, or Salesforce. It can all be put together through Workiva.
From there, it offers hundreds of templates to help managers quickly turn that data into reports for executives, or to file regulatory documents with the Securities and Exchange Commission, which is very useful for publicly traded companies.
The company is now using its expertise to focus on environmental, social and governance (ESG) reporting, which is a fast-growing global opportunity. Governments around the world continue to introduce new regulations requiring organizations to report their impact on the environment and society, and Workiva’s ESG tool helps them track carbon emissions, workforce diversity and similar metrics.
The platform allows companies to access ready-made ESG frameworks, build strategies, collect data, build reports and connect teams so they can collaborate. As mandatory ESG reporting becomes more widespread in the coming years, this product could be a major growth driver for the company.
Workiva recently reported its financial results for the third quarter of 2024 (ending September 30). It generated a record $186 million in total revenue, up 17% from a year ago. That was also an acceleration from 15% growth in the second quarter, and the strong result prompted management to raise its full-year 2024 revenue guidance by $6 million to a range of $733 million to $735 million.
Growth is driven by the customers who spend the most. At the end of the third quarter, the company served 6,237 businesses, an increase of 4.9% compared to the same quarter last year. And the increase in the number of customers with annual contract values (ACVs) of at least $100,000, $300,000 and $500,000 far exceeded total customer growth, as the chart below shows.
Image source: Workiva.
This underlines how important Workiva’s software is becoming among the largest organizations, which typically carry out highly complex digital activities. Additionally, the percentage of customers who adopted at least two of the company’s products reached an all-time high of 68% during the third quarter, demonstrating a positive response to the company’s expansion in areas such as ESG.
These strong results are all the more impressive given that management is carefully controlling costs to improve the bottom line. Through the first nine months of 2024, operating expenses rose just 10%, and while the company still ended up losing $46.2 million, that was a huge improvement over the $123.3 million it lost in the same period a year ago. lost ago.
Once Workiva achieves consistent profitability, it will have the flexibility to start investing more aggressively in growth initiatives such as marketing and research and development, which could lead to faster revenue growth in the long term.
The Wall Street Journal follows 11 analysts who cover Workiva, seven of whom have given it the highest possible Buy rating. Two more are in the overweight (bullish) camp, while the remaining two recommend holding. No analyst recommends selling.
Their average price target for the next twelve months is $104.3, which represents an upside of 14.3% from the share price at the time of writing: $91.49. However, the Street high target is $120, implying an upside of 31.1%.
As I mentioned at the top, the stock is down 42% from its all-time high of 2021. It was undoubtedly overvalued at the time, with a price-to-sales ratio (P/S) of around 20. But the stock’s decline combined the company’s consistent revenue growth has brought that P/S down to a more reasonable 7.1.
WK PS ratio chart
I think the stock could even exceed Wall Street’s lofty expectations over the long term, as management estimates the value of its financial opportunity at $35 billion across financial reporting, ESG reporting, compliance reporting and more. Considering Workiva’s market cap is currently just $5.1 billion, the company has a long road to growth.
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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Alphabet, Microsoft, Nvidia, Salesforce and Workiva. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
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