As Smartsheet (SMAR) prepares for its quarterly earnings presentation, its proactive steps in expanding its services and market presence, along with recent significant milestones, raise a crucial question: Does this momentum signal a buy, hold, or sell of its stock ? Read more to find out….
Enterprise work management platform Smartsheet Inc. (SMAR) will report its fiscal 2024 fourth-quarter earnings on March 14. Analysts expect revenue growth of 20.5% year over year to $255.86 million. Additionally, the company’s EPS for the same period is expected to rise 159% from the prior-year quarter to $0.18.
Additionally, in its fiscal third quarter release, SMAR forecast fourth quarter fiscal 2024 total revenue of between $254 million and $256 million, anticipating year-over-year growth of 20% to 21%, with non-GAAP operating profit of $21-$23 million and non-GAAP net earnings per share of $0.17-$0.19.
For full-year fiscal 2024, the company expects revenue of $955 million to $957 million, indicating a 25% year-over-year increase, with non-GAAP operating income expected to be between $82 million and $84 million and non-GAAP net income GAAP per share of $0.68. -$0.69.
Mark Mader, CEO of SMAR, said: “We exceeded expectations for top-line and profit this quarter. Our enterprise customers are using more durable, mission-critical solutions on the Smartsheet platform than ever before. We remain focused on bringing our latest new innovations to the market so that new and existing customers can take full advantage of our leading enterprise-level platform.”
Additionally, on January 17, 2024, SMAR announced reaching $1 billion in annualized recurring revenue (ARR) in the fourth quarter, a significant milestone following its recognition as a Leader in the December 2023 Gartner® Magic Quadrant™ for Collaborative Management of work.
Currently, SMAR enables mission-critical operations securely and reliably at scale for numerous organizations globally, including approximately 85% of the 2023 Fortune 500 companies. Mark commented, “Crossing the 1 billion financial threshold dollars in ARR is significant, but at the same time it should be recognized as another indicator along the way.”
SMAR shares have gained 5.3% over the past year, closing the latest trading session at $41.85.
Here are the key aspects of SMAR that could influence its price performance in the short term:
Latest developments
On October 23, 2023, SMAR introduced its latest Smartsheet region in Australia, reinforcing its commitment to improving service for its growing Asia-Pacific-Japan (APJ) customer base. Globally distributed Smartsheet Regions facilitate compliance with data residency regulations by giving organizations the flexibility to select hosting and compute locations.
Smartsheet’s Australian region will serve both new and existing APJ customers, operating across multiple sites to ensure redundancy. The configuration ensures enterprise-wide availability and scalability, positioning SMAR for accelerated growth and expansion in the APJ market, while enhancing its reputation for reliability and customer-centric solutions.
On September 19, 2023, SMAR unveiled its next-generation Smartsheet platform, introducing new product features that enable advanced solution development, AI-driven data insights, and broad scalability. From building healthcare clinics to overseeing acquisitions or executing marketing campaigns with tens of thousands of concurrent projects, SMAR helps customers manage increasingly complex and mission-critical tasks.
The innovative leap would enhance SMAR’s value proposition and strengthen its competitive advantage, attracting a broader customer base and driving sustained growth and market expansion.
Solid financials
During the third quarter of fiscal 2024, ending October 31, 2023, SMAR’s total revenues increased 23.2% year-over-year to $245.92 million. Its non-GAAP operating income was $19.36 million, compared to an operating loss of $4.31 million in the prior-year quarter.
Additionally, the company’s non-GAAP net income and non-GAAP net income per share were $22.59 million and $0.16, compared to a net loss and loss per share of $1.89 million dollars and $0.01, respectively, in the prior-year period.
Solid historical growth
Over the past three years, SMAR’s revenues have increased at a CAGR of 37.2%. Its tangible book value grew at a CAGR of 3.7% during the period. Additionally, the company’s total assets and leveraged free cash flow have increased at CAGRs of 13.1% and 96.4%, respectively, over the same time frame.
Optimistic analysts’ estimates
The consensus revenue estimate of $1.14 billion for the fiscal year ending January 2025 reflects a 19.4% year-over-year increase. Likewise, the company’s EPS for the same period is expected to grow 35.8% year-on-year to $0.93. Additionally, the company has surpassed consensus revenue estimates in all four trailing quarters.
Robust profitability
The stock’s trailing 12-month gross profit margin and trailing 12-month leveraged FCF margin of 79.79% and 26.69% are 62.6% and 197.8% higher than averages of the industry by 49.08% and 8.96%, respectively. Additionally, the company’s trailing 12-month asset turnover ratio of 0.82x is 34.9% higher than the industry average of 0.61x.
POWR Ratings Show Solid Outlook
SMAR’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. POWR Ratings are calculated by taking into account 118 different factors, each optimally weighted.
Our proprietary rating system also evaluates each security based on eight distinct categories. SMAR holds a grade of B for Growth, reflecting its strong historical growth performance. Furthermore, the stock gets a B grade in terms of quality, in line with its impressive profitability metrics.
SMAR is ranked 9th out of 19 in the Class B Software – SAAS industry. Click here to access SMAR’s Value, Momentum, Stability and Sentiment ratings.
Bottom line
SMAR is poised for growth driven by its innovative product capabilities and expansion strategies. The introduction of its Smartsheet region in Australia and the unveiling of its next-generation platform demonstrates its commitment to improving services and catering to a broader customer base, positioning the company for accelerated market expansion.
Additionally, SMAR could make an ideal buy right now thanks to its solid financial performance in the most recent quarter, upbeat analyst estimates, and robust profitability metrics. Additionally, with strong historical growth, SMAR stands out in the software industry, offering the potential for long-term value appreciation.
How does Smartsheet Inc. (SMAR) compare to its competitors?
While SMAR has an overall grade of B, equivalent to a Buy rating, you can take a look at these A (Strong Buy) rated stocks in the Software – SAAS sector: DocuSign, Inc. (DOCU), Informatica Inc. (INFA ) and Vimeo, Inc. (VMEO). To explore more Software – SAAS stocks, click here.
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SMAR shares were unchanged in premarket trading Tuesday. Year to date, SMAR has fallen -12.48%, compared to a 7.57% increase in the benchmark S&P 500 index over the same period.
About the author: Aanchal Sugandh
Aanchal’s passion for financial markets drives his work as an investment analyst and journalist. He earned his bachelor’s degree in finance and is pursuing the CFA program. He is adept at evaluating the long-term prospects of stocks with his fundamental analysis skills. His goal is to help investors build portfolios with sustainable returns.
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