Samsara's big rally: 27% surge following stellar Q3 earnings

Samsara Inc. NYSE: IOT falls into the category of “companies you don’t know about, but should.”

The Samsara chart shows the stock’s 27% rally the week of November 27, following the company’s third-quarter earnings report. 

The company specializes in the Connected Operations Cloud, a system that helps businesses implement Internet of Things (IoT) data for business insights and operations improvements.

Connecting devices and objects 

The term IoT refers to a network of interconnected devices and objects that communicate and share data without human intervention. These devices are equipped with sensors, software, and other technologies to collect and exchange information.

Consumers may be familiar with “smart home” IoT applications, such as thermostats that adjust based on usage patterns, remotely accessible doorbell cameras and lights controlled by voice commands or mobile apps.

Beating analysts' views

The company reported earnings of 4 cents a share, up from a loss of 2 cents a share in the year-ago quarter. Revenue of $237.5 million was up 40% from a year ago.

Wall Street expected Samsara to earn a penny per share on revenue of  $224.7 million. 

With a market capitalization of $18.47 billion, Samsara is among the ranks of technology stocks, but is not yet part of the SPDR S&P 500 ETF Trust NYSEARCA: SPY. 

Samsara has several positive traits. For example, the stock went public in December 2021. 

Newly public companies among big gainers

Companies that went public in the past few years are often among the market’s biggest gainers due to optimism about growth. Those companies often have products and services that are in high demand. Samsara’s expertise in IoT meets that definition perfectly.

Its customers range from small and medium-sized businesses to state and local governments and large, global enterprises with complex operations involving thousands of physical assets. 

At the end of the most recent quarter, Samsara had annual recurring revenue of $1.003 billion, representing 39% year-over-year growth. It has  1,663 customers with ARR over $100,000, up 49% from a year ago.

ARR offers predictable income stream

ARR is crucial for subscription-based tech companies as it provides a predictable and stable income stream. In addition, both the company and analysts who follow it can map out future revenue expectations, as high ARR signifies customer retention.

That, in turn, can attract investors, contributing to the company's long-term growth.

For example, Samsara ownership data show 176 institutional investors accounting for $2.66 billion in inflows, versus 67 institutional sellers accounting for $741.57 million in outflows. That’s lopsided in favor of buyers, which you frequently see in young tech companies. 

The stock’s up/down volume ratio is 1.4, indicating that trading volume on up days is 1.4 times higher than on down days. That kind of buying pressure signals an ongoing bullish trend. 

Growth drivers for IoT

In addition to its youth, the company is in a fast-growing industry. 

According to tech researcher Frost & Sullivan, the main drivers for IoT expansion include companies continuing their digital transformation journey and the rollout of 5G connectivity networks.

In filings, Samsara said, “Unlike retail, advertising, media, and information technology, which have already undergone digital transformation, industries with physical operations are still in the early stages of digital adoption.”

Legacy industries slow to fully digitize 

Historically, the ability of those companies to connect their assets to the Internet has been limited by the physical nature of these industries. Often, the systems used in these industries are closed, cumbersome and require manual data entry. That leads to inefficiencies and obstacles to developing sustainable processes. 

“However, with advancements in IoT connectivity, cloud computing, video imagery, and AI, we believe industries that depend on physical operations are at the precipice of a massive wave of digital adoption,” the company said.

The company is expected to post an annual profit for the first time this year, earning 5 cents per share. Analysts see that rising to 8 cents a share next year, an increase of 51%.