Red-hot tech stocks fell off a cliff heading into the Labor Day weekend. Alteryx (NASDAQ:AYX) stock was no exception. AYX stock dropped about 15% in a matter of days.
Don’t stress this sell-off in tech stocks, or in AYX stock.
This is just a valuation gut check after tech stocks had rallied in a meteoric way to lofty levels that were detached from the fundamentals. Gravity has finally kicked in. These stocks are now falling back to more reasonably valued levels.
Once tech stocks hit those more reasonably valued levels, the sell-off will end, and the longer-term rally will resume.
That’s because the fundamentals underlying the economy and tech stocks remain robust.
The U.S. economy continues to recover from the novel coronavirus crisis. Central bank support remains strong. Congress is patching together another stimulus bill. A vaccine is on the way. Corporations are innovating and adapting to this new normal. All good stuff.
Meanwhile, technology continues to disrupt every facet of our lives at an accelerated pace today because of Covid-19. And these companies’ influence, revenues and profits only project to keep going way higher over the next five to 10 years.
So buy the dip in tech stocks – once they fall into undervalued territory. Most tech stocks aren’t there yet. Alteryx stock, however, is there. So put AYX stock first on your September “buy the dip” shopping list.
Here’s why.
Growth Narrative Is Compelling
In the big picture, the Alteryx growth narrative is compelling.
We are increasingly pivoting into a world wherein data is everywhere. In that world, tools which help companies glean value from that data, and turn it into actionable insights, become immensely useful. Indeed, they become mission-critical.
To that end, data science platforms will reach enterprise ubiquity over the next decade. Every single enterprise will lean into data analytics to develop competitive advantages and optimize operating efficiency.
Alteryx provides these tools. And it is the best in the business at doing so, year in and year out. This is thanks to advantages such as being end-to-end, code-free and highly scalable, among other things.
Yet, only 37% of Global 2,000 companies use Alteryx’s platform. Those companies are presumably developing competitive advantages over the 63% that aren’t. They either aren’t using data analytics to drive successful outcomes and/or they are using an inferior product.
Consequently, secular growth drivers and competitive dynamics will promote broader adoption of Alteryx’s platform over the next several years. Broader adoption will drive sustained robust revenue and profit growth. This, in turn, will sustain long-term strength in AYX stock.
Rebounding Enterprise Spend
Alteryx stock got hit hard recently because the company’s second quarter earnings report wasn’t up to snuff, mostly because amid the Covid-19 pandemic, enterprises cut back spending on non-essential services like data science platforms.
This dynamic is changing now.
Enterprise spending is rebounding because consumer spending is rebounding (so companies are earning more money, which means they can spend more money again) and business confidence is rebounding (which means companies are again more comfortable upping spend).
All that means that companies are going to re-up spending on data science platforms and services over the next few months.
As that happens, Alteryx’s growth trends will meaningfully accelerate. Second-half 2020 numbers will come in way above expectations. AYX stock will pop.
AYX Stock Is Undervalued
By my numbers, Alteryx stock is way undervalued today.
Because management projects to keep innovating and successfully executing against the company’s huge data science opportunity, Alteryx should be able to sustain largely 10%-plus revenue growth over the next 10 years.
Gross margins will remain strong, up above 90%, thanks to strong demand and favorable pricing structures. Economies of scale will drive positive operating leverage and push operating margins up toward management’s long-term 40% target.
Assuming so, then my modeling suggests that Alteryx will hit $8.45 in earnings per share by 2030. Based on 35-times forward earnings multiple and an 8.5% discount rate, that implies a 2020 price target for AYX stock of more than $140.
Bottom Line on Alteryx
Alteryx stock is a long-term winner that, because of near-term fears which will pass, is trading at a significant discount to its fair value.
Take advantage of this disconnect in AYX stock while it lasts.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm.