Key points
- Braze shares have been under pressure since February, with last week’s report leading to further selling.
- However, it appears that the stock is extremely oversold and may rebound soon.
- At the same time, several heavyweight analysts have reiterated their buy ratings, so the argument for this being an entry opportunity is compelling.
- 5 titles we like best from Braze
The 17% drop from February’s peak through the middle of last week could have been a fair warning to investors Brazing, Inc NASDAQ: FAST, ahead of the company’s earnings call last Wednesday. The customer engagement platform recovered from late 2022 through the first weeks of February, and while it still had a long way to go to get back to its 2021 post-IPO high of around $98, the multi-year rally looked stronger that never.
However, as is often the case on Wall Street, any weakness ahead of a big event, such as an earnings release, can send investors out the door before anything is confirmed. What’s interesting about Braze’s case, and what makes us wonder if there’s a potential opportunity here, is that the company managed to deliver a solid result relative to analysts’ expectations. This was the case for both topline revenues and trailing earnings, the former showing year-over-year growth of over 32% and the latter just shy of showing a profit.
Those hoping for confirmation of the sell-off of the previous four weeks turned out to be a misunderstanding, but were left disappointed. Signs of slowing customer growth emerged, leading to management’s decision to offer softer-than-expected forward guidance.
The devil in the details
If nothing else, Wall Street is looking to the future. He’s always happy to see a stock reporting strong performance compared to previous quarters, but what he really wants to see is bullish guidance for the next few quarters. Therefore, since the negative part of the report was quickly digested, it was no surprise to see the stock sell off afterward.
Having already lost 17% of their value upon release, they fell a further 19% as of Tuesday morning, recording a combined decline of 33% from their February peak. However, for those of us on the sidelines, this has all the hallmarks of an overreaction, and there are several reasons to believe the weakness is temporary.
Consider, for example, that at $131 million, it was the highest revenue ever recorded by the company. At the same time, their operating income improved in the last quarter, while it was the best result in terms of earnings per share since they went public.
There’s also the fact that since the week leading up to last week’s release, the team at UBS had been upgrading the stock based on its long-term potential. Having previously had a Neutral rating on Braze shares, they raised it to a Full Buy, while raising their price target to $62. With all the selling that has occurred in the meantime, this now indicates an upside of nearly 50%.
Bullish analyst updates
Sure, UBS may have overestimated the company’s growth prospects and been caught off guard by the weak guidance, but even after the release, we saw plenty of other analysts joining in on the bullishness. Needham, Piper Sandler, TD Cowen and Raymond James are just a few of those who have reiterated their buy rating on Braze stock since last week’s release. In terms of updated price targets, three are at $65, which is even higher than UBS calculated before the update.
All of this leads to arguments that the post-earnings sell-off in Braze stock is an overreaction and that the stock could soon see a pullback. From a technical perspective, it is worth noting that at 24, the stock’s Relative Strength Index (RSI) is highly extended and indicates extremely oversold conditions. This can be one of the most reliable indicators when it comes to a stock’s short-term prospects and suggests that the current selling period may soon run out of steam.
Considering that so many analysts are predicting an upside of at least 50% in the medium to long term, one can’t help but think that this could be one of the great entry opportunities of the year.
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