Last Updated on April 13, 2021 by Henry John
Alteryx (NYSE: AYX) is down 26% YTD and over 50% off its 52 weeks high; the drop is relatively heavy when compared to that of its peers.
The company provides an end-to-end self-service analytics platform that is designed to assist data analysts and scientists to solve complex analytics problems. It offers its software solutions to a wide range of companies in different industries, with companies like Coca-Cola, Walmart, 7-Eleven, Amway, and Gymshark on its list of customers.
The data analytics stock has been struggling since August 2020 after its second-quarter report that beat analyst estimates and its own guidance disappointed on analysts’ expected guidance.
On the 7th of August 2020, AYX dropped 30%, the biggest drop in a trading day throughout its 6 years history on the New York Stock Exchange. And since then the company has been struggling to shake off the blow, however, it seems to be doing that heading into 2021 and in early 2021, growing from $111 per share on opening day to $138 in early February, then the fear of inflation kicked in and AYX started dropping heavily again.
The fear of inflation aside, the major driver of the drop in AYX has been slowing revenue growth, which is made worse by the company’s disappointing guidance that fails to lift spirits. Investors pay a premium in order to profit from the growth potential of high-growth stocks like AYX, however, if the company no longer promises or fails to deliver on the expected growth rate, it will no longer make investing sense for investors to continue holding the stock at a premium, hence, the drop in the stock’s price/valuation.
Over the past two quarterly earnings call, the company’s guidance has continuously fallen short of analyst estimates. And it is not for nothing that the company’s guidance reflects a slower growth rate since the onset of the Covid-19 outbreak.
Revenue generation has been difficult for many companies since the outbreak, and a lot of companies are having to cut back on certain business expenses in order to stay afloat through this tough time. Unfortunately for data analytics companies like Alteryx, analytics expenses are one of the major areas companies are cutting back on.
During an earnings call in August 2020, Alteryx CEO Dean Stoecker said, “…we experienced a slowdown in the second quarter driven by the global impact of COVID-19…”, clearly the slowdown in the company’s growth is driven majorly by the impact of the pandemic. It wouldn’t be irrational to expect the company’s growth rate to pick up with a return to normalcy following the expected economic recovery.
Moreover, the rising 10 years Treasury yield that has caused the recent meltdown in technology stocks like Alteryx will not continue rising indefinitely.
There is no denying that the rising interesting rate and the impact of the global pandemic has affected the business and subsequent valuation of AYX significantly, however, it’s looking likely that the drop in valuation has created an opportunity for growth investors to buy into the stock at a great discount.
Since 2016 when the company featured on the NYSE, it has continuously grown revenue at a promising rate, and the 18% YoY growth it registered in 2020 is decent considering the fact that a significant portion of its revenue comes from on-premise sales, like sales from Alteryx Designer that’s made available on-premise. And interestingly, the new CEO is working towards that transformation of Alteryx solutions to a fully-cloud based data analytics platform.
Alteryx stock price has dropped down to its March 2019 numbers, and the stock is fundamentally stronger today than it was two years back. The company’s long-term prospect remains promising, the demand for data analytics solutions will increase significantly over the long-run, and industry leaders like Alteryx are well-positioned to benefit from the massive future demand for data analytics solutions.
Alteryx’s current valuation closely reflects all the major negatives surrounding the company’s prospects, which were carried over from the past few quarters. And doubling down on AYX will not automatically erase the drawbacks that caused its fall in the first place.
Nonetheless, a return to normalcy will help the company perform way better than its pre-Covid highs. And if the stock price can move closer to its pre-Covid high of $158 per share on the back of stronger performance, a strong open economy, and a renewed blind love for technology growth stocks, well, you got yourself a winner.
Think two years from now, at most, will the economy be stronger and open?
Will the fear of rising interest rates be caged?
And will technology growth stocks will once again be loved blindly?
If your answers are yes, yes, and yes, then AYX has a clearer path to run back to $158, which will see it almost double its current price of $82 per share. Double down on a stock that has the potential to double in valuation, what’s not to like?