After a lackluster first half to the year, it’s looking like shares of MongoDB (NASDAQ: MDB)
are finally ready to turn around and start heading north. For investors who’ve been involved since at least last year, it’s about time. They’ve had to watch their positions fall close to 60% from last year’s all-time high through the lows of last month. To be fair though, it’s hard to pin all of this just on Mongo. The tech sector, and indeed almost all equities, have been under selling pressure for many months now, as rising inflation and rising interest rates have created a risk-off environment that’s toxic for any high tech growth stocks.
But Mongo had no issue being one of those as its shares rallied close to 2,000% in the four years after their 2017 IPO, and while the recent slide has been painful for existing investors, there are fresh bullish signs that those of us on the sidelines should be taking notice of.
For starters, the Palo Alto headquartered company released its Q1 earnings late last week and they impressed across the board. Non-GAAP EPS had been expected to register a loss of -$0.10, but came in at very black and positive $0.20. Revenue for the quarter also beat analyst expectations and showed impressive year-on-year growth of 57%.
Dev Ittycheria, CEO of MongoDB, struck a bullish tone with the results that suggest this is just one of many knockout quarters coming along the line. He told investors on the earnings call that "MongoDB began fiscal 2023 with terrific first-quarter results, highlighted by revenue growth of 57% year-over-year, driven primarily by 82% Atlas growth. MongoDB enables developers to build mission-critical applications that drive better user experiences, enable new capabilities and improve operational efficiency, and our Q1 results give us increased confidence in our ability to capture the large market opportunity over the long term".
Shares had started to rally into the release and are now already 40% higher from their lows of last month. It might be some time before we’re back at 2021’s highs, but it’s fair to say that there’s been a definitive low put in now that marks a new line in the sand.
In the aftermath of the release the folks over at Piper Sandler were quick to praise the report. Analyst Brent Bracelin noted that MongoDB has "cemented its stature as one of the marquee all-weather growth stocks" and highlighted the strong growth in its Atlas database, which saw 80% growth for the fourth straight quarter. The company's enterprise advanced segment also rose "unexpectedly" sequentially, showcasing strong enterprise adoption.
Bracelin also noted that “the cautious guidance factoring in further macro pressures appears ultraconservative, particularly given the strength in the pipeline and enterprise momentum this quarter". He too took the more cautious route and lowered his per-share price target to $430 from $585, which to be fair still suggests there’s upside of more than 40% to be had from where shares closed on Wednesday.
Citi analyst Tyler Radke echoed his peers when he said the first-quarter results showed a "strong operational performance" thanks to Atlas and Cloud. Regarding the conservative guidance that Bracelin had highlighted, Radke said the adjustment going into a time of broader economic uncertainty should make the stock more "ownable," equating it to March 2020 when the pandemic kicked into high gear. The Citi analyst raised the per-share price target to $425 from $405 following the results.
For investors who’ve been waiting to dip their toe back into equities for the past few months, you can’t really ask for a better time to get back into an industry-leading software stock. Even with the recent rally, shares are still a 175% move away from being back to their highs of last November, and all the signs from last week’s earnings report suggest that the fundamentals are there to support that kind of trend.
To the downside we have a clear line of support around the $220 level, while to the upside, we can expect the $400-450 range to come into play quite soon. As risk-reward goes, this is quite tempting and it may just be the time to start backing up the truck.
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