On Tuesday, Scotiabank (TSX:BNS) initiated coverage on monday.com Ltd. (NASDAQ:MNDY (NASDAQ:MNDY)), a cloud-based work operating system, assigning a Sector Outperform rating and setting a price target of $235.00. The firm's analyst cited the company's potential growth drivers and undervaluation in the market as key reasons for the positive outlook.
The analyst highlighted that monday.com, despite its strong position, is trading at a multiple that suggests it is undervalued. The shares are currently trading at 21 times the calendar year 2026 estimated enterprise value to free cash flow (EV/FCF), which is low given the company's growth prospects. The consensus estimates have stopped forecasting double-digit subscription revenue growth, but Scotiabank believes that the company's strategic initiatives will support continued growth.
Scotiabank pointed to several factors that could fuel monday.com's revenue growth, including international expansion, industry-specific solutions, adoption across multiple clouds, and innovative pricing and packaging strategies. These elements are expected to contribute to at least 9% subscription revenue growth beyond the next year.
The firm also mentioned that there is potential for upside to the consensus free cash flow (FCF) estimates for monday.com. The analysis suggests that Salesforce (NYSE:CRM), which monday.com is compared with, has considerable potential to increase its operating margins over time, benefiting monday.com's financial position.
The analyst concluded by emphasizing the growth pillars of monday.com and the opportunities for the company to enhance its financial performance in the future. The positive sentiment from Scotiabank reflects confidence in monday.com's business model and market opportunities.
In other recent news, monday.com Ltd. announced significant financial developments, including surpassing $1 billion in annual recurring revenue (ARR) in the third quarter of fiscal year 2024. The company also reported a robust third-quarter revenue of $251 million, marking a 33% year-over-year increase. Baird and Canaccord Genuity, two financial analysis firms, have recently adjusted their price targets for the company, with Baird increasing it to $270 and Canaccord Genuity raising it to $310.
Despite facing challenges such as a slower pace in enterprise customer acquisition and macroeconomic factors, monday.com remains optimistic about its growth trajectory, backed by robust product adoption and strategic initiatives. The company also announced the appointment of Adi Dar as COO and revealed plans for workforce expansion, primarily in research and development and sales, by mid-30% in fiscal year 2024.
Furthermore, the company is planning new product launches, including monday AI and monday CRM features, and is exploring merger and acquisition opportunities.
InvestingPro Insights
Adding to Scotiabank's positive outlook on monday.com Ltd. (NASDAQ:MNDY), recent data from InvestingPro provides further context to the company's financial position and market performance.
InvestingPro data shows that monday.com has a market capitalization of $12.74 billion and has demonstrated impressive revenue growth of 33.9% over the last twelve months as of Q3 2024. This aligns with Scotiabank's expectation of continued growth driven by the company's strategic initiatives.
The company's gross profit margin stands at a remarkable 89.46%, underscoring its operational efficiency. This high margin supports Scotiabank's view on the potential for improved financial performance and increased free cash flow.
InvestingPro Tips highlight that monday.com holds more cash than debt on its balance sheet and that liquid assets exceed short-term obligations. These factors contribute to the company's financial stability, which could be crucial for supporting its growth strategies mentioned in the Scotiabank analysis.
Additionally, analysts anticipate sales growth in the current year, with 21 analysts revising their earnings upwards for the upcoming period. This consensus aligns with Scotiabank's positive outlook on the company's growth prospects.
It's worth noting that InvestingPro offers 12 additional tips for monday.com, providing investors with a more comprehensive analysis of the company's potential. These insights could be valuable for those looking to delve deeper into monday.com's investment case beyond the Scotiabank coverage.
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