Monday.com Opens Generational Opportunity With Manic Sell-Off
Monday.com’s (NASDAQ: MNDY) Q3 earnings release provided an excuse to sell, but the 20% decline posted in premarket action is an overreaction of epic proportions. The cause was guidance. The company narrowed its range to the high end of the previous range, falling short of a relatively high consensus by a very narrow margin. While tepid relative to the consensus, the company is forecasting double-digit growth, a healthy margin, and robust cash flow—a critical factor.
Other critical factors include internal metrics—such as client growth, retention rates, and RPO—that suggest robust performance will continue in the subsequent fiscal year.
The cash flow and its impacts are substantial for this tech stock. The company reported $95.1 million in operating cash flow for the period, with 97% of it converting to free cash flow usable by the business. Free cash flow is up 12% year-over-year (YOY) and is running at a healthy margin of nearly 30%. The company chooses to focus its FCF on reinvestment and growth, which is paying off nicely for investors.
The net result is that cash, equivalents, investments, current, and total assets increased at an accelerated pace compared to liabilities, leaving equity up nearly 25% on a YTD basis and expected to continue swelling.
Monday.com Issues Strong Results and Expects Strength to Continue in Q4
Monday.com had a solid quarter with revenue growing by 26.3% YOY to $316.9 million. This represents a 350 basis point improvement over MarketBeat’s reported consensus, driven by client growth and service penetration. Large clients, those with more than 10 users, grew by 7% to account for 81% of annual recurring revenue.
Those contributing more than $50,000 in ARR grew by 37% with accelerated increases in clients contributing more $100,000 and $500,000. NRR increased by 111% system-wide, with large client and contributor penetration improving by 115% and 117%, respectively.
The margin news is also favorable to shareholders. The company experienced headwinds along with the rest of the broad market but managed to widen its adjusted operating margin by 200 basis points. The net result is an accelerated 36% growth in the adjusted EPS and significant outperformance. The company’s adjusted EPS outpaced the consensus forecast by nearly 30 cents, suggesting the Q4 guidance may be overly cautious.
As it stands, the company forecasts revenue growth to slow to 22%, a slight decrease from the 23% analysts forecast, and more than $330 million in free cash flow.
Institutional and Analyst Trends Suggest a Dip Buying Opportunity in MNDY Stock
The Q3 results are unlikely to alter the institutional and analyst trends, which are robust and suggest a deep value opportunity has opened in this market. Analyst sentiment trends have included price target reductions over the past few months. However, the bulk of revisions align with the consensus or are just below it, forecasting a 40% to 50% price rebound, with the low-end well above the early November price action.
Trading at $150, this stock has a 35% upside potential at the low end of the analysts' target range.
Regarding the institutions, they own a significant 74% of the stock and have provided support throughout the year, buying at a pace of nearly $2 for every $1 sold. Assuming this continues in the back half of Q4, the market sell-off in MNDY stock could come to a quick end, providing a clear signal for investors.
The technical action isn’t pretty, the 20% sell-off set a fresh long-term low below near-term support, but it may be the last of the serious selling seen for a while. The move put the market at long-term lows, where solid support is likely, and the indicators suggest this market is overextended and oversold, with buyers waiting to step in. Trading at 8x its 2030 EPS forecast, this stock could rise by 200% over the next few years.
