The Informatica IPO Is Still Worth Buying
Informatica (NASDAQ: INFA) IPO’d in late October and did what every stock is supposed to do post-IPO; move higher. Price action in Informatica is up more than 25% since the opening trade and from what we can glean, moving higher still. Not only is the company well-positioned as a cloud-services provider but its AI-powered cross-platform capabilities make it a must-have technology for many businesses. The company counts Kroger, Eli Lilly, and Unilever among its largest clients and the list is growing. In terms of those contributing more than $1 million to revenue, the company counts 127 clients at the end of the Q3 period, up 44% on a YOY basis.
Informatica Has Robust Quarter, Guides Higher
Informatica had a good quarter in which revenue grew 10.6% YOY and beat the consensus by 40 basis points. These figures are good, not great, but compounded by robust double-digit growth in key metrics that point to an acceleration in the coming quarters and a better-than-expected margin. The company reports subscription ARR is up 36% within the 17% systemwide gain while cloud ARR is up 44%.
Moving down the report, the company reported a wider than expected margin due to scaling that resulted in a surprise profit on the bottom line. The GAAP EPS of $0.01 beat by $0.06 but there are other factors to consider. R&D and sales & marketing more than account for losses and adjusted profits have been easy to attain. On an adjusted basis, the company reported $0.23 in EPS to beat the consensus by $0.06 as well, and the guidance is positive.
Infosys is expecting Q4 revenue to be in a range bracketing the analyst consensus and full-year guidance is favorable. The full-year outlook is above consensus and leaves the door open for outperformance as well. With business accelerating and the need for cloud-based services growing we think Informatica could see growth accelerate and sustain those levels for several quarters at the very least.
The Analysts Like Informatica
The analysts have been silent in regard to Informatica so far but we can’t help but think they are collectively giddy with excitement over the Q3 news and outlook. The post-IPO action was mostly bullish with only 2 of the 10 issued ratings less than Buy and those are Neutral. The Marketbeat.com consensus sentiment, however, is a buy with a price target of $41. The $41 consensus price target is predicting 20% of upside for the stock and several analysts see it moving higher. The high price target of $53 is held by Goldman Sachs and implies 55% of upside for this market. Even in the absence of upped ratings or price targets, we see new analysts getting on board this investment which is just as good or better. In either case, we are expecting to see both the Marketbeat.com consensus sentiment get stronger and the consensus price target to move higher over the next year.
The Technical Outlook: Informatica Wrestles With Resistance
Shares of Informatica tried to move higher in the wake of the Q3 report but were held back by resistance at the freshly-set all-time high. With shares up 25% in such a short time, it is not surprising to see some resistance but we don’t expect it to be strong or last long. Assuming price action makes a quick consolidation and moves higher, we see this stock setting a new high fairly soon and then trending higher over the medium and long terms. If not this market could be in for a correction that would set up another buying opportunity at a lower price point.
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