In 2020, the stock market crashed on fears that the Covid-19 pandemic was a “world-ender.” Then markets rebounded sharply as those fears proved overstated. Most stocks today trade at or near their pre-Covid levels. But not Alteryx (NASDAQ:AYX), as AYX stock has taken investors on a ride this year.
The data analytics provider has seen its stock price get crushed amid the Covid-19 pandemic. That’s because many enterprises apparently view data analytics spend as discretionary spend, and enterprises have — amid a drop in business activity in 2020 — cut back on discretionary spending. This has led to a material slowdown in Alteryx’s growth trajectory over the past few months, which has simultaneously resulted in an Alteryx’s stock crash.
Unlike the rest of the market, Alteryx shares have not bounced back.
But, zooming out, the big-picture growth narrative surrounding Alteryx stock has not changed. Data is still the future of the economy. Alteryx is still a top-tier provider of data analytics solutions. The platform will continue to see robust adoption over the next several years as every company turns into a data-driven organization. Revenues and profits will keep powering higher. So will the AYX stock price.
To that end, you shouldn’t stress the recent sell-off in Alteryx stock. Instead, you should embrace it. Buy the dip. Wait for near-term headwinds pass. And let long-term tailwinds push this winning stock back to $200.
Here’s a deeper look.
Data Is the Future
Many people believe that money is at the heart of business. But it’s not. In the business world, data is king.
Data can help businesses create better products, enhance marketing campaigns, and reach targeted customers.
Data can help businesses optimize supply chains, streamline business functions, and automate various processes. It can help businesses mitigate risk, predict business outcomes, and glean consumer sentiment.
For a business, data can do everything.
It should be no surprise, then, that a 2020 Forrester Consulting survey found that data-driven organizations are 58% more likely to beat revenue goals than non-data companies.
Yet, a 2019 New Vantage survey found that only 31% of companies have pivoted to data-driven decision making — and because their peers are outperforming them in everyway, the implication for non-data businesses is obvious: pivot to data-driven decision making, or fail.
Thus, over the next several years, you will see every business in the world turn into a data-driven organization, and so the Intelligence Economy — a new era wherein enterprises are unlocking the power of big data to drive better business outcomes — will emerge and become ubiquitous.
At the heart of this Intelligence Economy is Alteryx, meaning that AYX stock has big long-term potential.
Alteryx Is a Winner in the Intelligence Economy
In the Intelligence Economy, tools which help companies glean value from the vast amount of data at their fingertips, and turn it into actionable insights, will become immensely useful. Indeed, they will become mission-critical.
To that end, data science platforms will reach enterprise ubiquity over the next decade, as 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, mostly because it’s a very easy-to-use, code-free platform that is simultaneously very robust, comprehensive and powerful, and which can be mixed and matched with essentially any data set.
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 growth. Scalability inherent to the company’s SaaS model will turn robust revenue growth into even more robust profit growth through positive operating leverage and margin expansion.
This, in turn, will sustain long-term strength in AYX stock.
Recent Weakness Won’t Last
Alteryx stock got hit hard in 2020 because the company’s second quarter earnings report wasn’t up to snuff, mostly thanks to the fact that — as mentioned earlier — enterprises cut back on discretionary spending amid a drop-off in broader economic activity.
But economic activity is now normalizing. Enterprise spending is rebounding. Consumer spending is rebounding (so companies are earning more money, which means they can spend more money again). Business confidence is rebounding (which means companies are again more comfortable upping spend).
All that means that companies are going to re-up discretionary spending over the next few quarters. As they do, they will spend more and more money on data science platforms and services like Alteryx.
Alteryx’s growth trends will meaningfully accelerate. Second-half 2020 numbers will come in way above expectations. AYX stock will pop.
Big Upside Potential for Alteryx Stock
By my numbers, Alteryx stock is way undervalued today.
Secular big data tailwinds and built-in Alteryx platform advantages will help this company sustain double-digit revenue growth for the next several years. Given the robust scalability of this software business model — which features 90% gross margins — sustained positive operating leverage will turn that double-digit revenue growth into 15%-plus profit growth.
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 2021 price target for AYX stock of more than $150.
In this market, it’s not unlikely to see growth stocks firing on all cylinders be rewarded with premium valuations. Alteryx stock will likely be no exception to that trend. As such, I think prices closer to $200 are totally doable for AYX stock over the next 12 to 15 months.
Bottom Line on AYX Stock
Alteryx stock is a long-term winner going through an ephemeral rough patch. Buy AYX stock today while things are rough. Let these bad times pass. Let the good times come back. And watch the stock rebound all the way to $200.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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