Goldman Sachs sees a rebound for these two software stocks

TECHNOLOGY

It’s no secret that many tech stocks have had a torrid time navigating the 2022 bear, with many bears significantly lower for the year. However, heading into 2023, Goldman Sachs’ Kash Rangan believes a recovery could be on the way for slumping software stocks.

‘Software stocks in our coverage have underperformed the NASDAQ significantly in 2022,’ said Rangan, who goes on to describe why technology – and software in particular – is primed to step up when bear turns towards recovery: “With the contraction of software multiples in In line with 2008 levels, we see a compelling case for buying in the sector, as the group has stronger fundamentals and secular good winds.”

Indeed, with the sector now “oversold” and many of the stocks under Goldman’s umbrella trading at a “discount to their intrinsic value,” Rangan sees this as a “buying opportunity for many of our high-end SaaS names. quality”.

So let’s follow Rangan’s lead and take a look at some of these buying opportunities. We found two software stocks that the analyst likes and used the TipRanks platform to check out the latest data on both; these are Buy-rated stocks and both show upside potential for the coming year. Is there a recovery in storing them? Check out what the data – and analyst Rangan – have to say about it.

MongoDB, Inc. 🇧🇷MDB🇧🇷

The first is MongoDB, a database software provider. MongoDB is a data platform for developers, with the tools and services needed to make it easy to create, transform, and disrupt industries through the power of data. The New York-based company has more than 39,000 customers in 100 countries worldwide. Its database platform has been downloaded more than 325 million times, and the company has logged over 1.5 million customer records for its MongoDB University certification courses, making MongoDB one of the world’s leading developers of database platforms. database.

The company’s revenues have been showing consistent quarter-over-quarter gains for several years. In the last reported quarter, 3Q22, the company posted net income of $333.6 million, with a gain of nearly 9% sequentially – and an impressive 47% year-over-year. This solid gain was driven by a 26% year-on-year gain in total customer numbers – and a strong 61% year-on-year increase in revenue for the company’s flagship cloud product, Atlas. Ultimately, MongoDB was a pleasant surprise for investors, as non-GAAP diluted EPS came in at 23 cents, well above the expected loss of 17 cents – and nearly 8 times higher than the 3 cents reported. in the year. -previous quarter.

Therefore, MongoDB maintains a solid position in a vital niche, but even so, the stock is down 63% this year, nearly double the NASDAQ’s 33% loss, as the stock was unable to withstand the downtrends in amid fears at the beginning of the year of a slowdown in the company’s growth.

However, Rangan presents the optimistic case for the company. “As we look beyond the volatility of potential near-term consumption, we reiterate our view that MongoDB is uniquely positioned to capture an outsized share of one of the largest/most strategic TAMs in software (+14% CAGR to reach > US $120B in CY26, per IDC) due to a shift in the database market towards cloud/NoSQL (which Atlas is firmly leveraged for), potentially supporting $10B in long-term revenue,” he explained. the analyst. “We point to the strength of MongoDB’s key metrics, including +2,000 TTM from direct clients added versus +1,100 in prior year Q, which is the key driver for long-term revenue growth as these clients deploy new workloads in the MongoDB platform.”

Those comments provide solid support for the analyst’s Buy rating for the stock, while its $325 price target implies a robust 64% potential gain through the end of 2023. (To watch Rangan’s track record, Click here🇧🇷

Mongo DB has attracted a lot of attention from the Street, in the form of 21 recent analyst reviews that include 17 Buys and 4 Holds for a Strong Buy consensus rating. With an average price target of $255.65 and a trading price of $197.47, the stock has a potential gain of 29% over the one-year horizon. (See the MongoDB stock prediction on TipRanks.)

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Snowflake 🇧🇷SNOW🇧🇷

The second stock we are looking at, Snowflake, is another data cloud provider, offering a public service that allows organizations to pool resources and benefit from near limitless scale and performance. Snowflake’s Data Cloud provides a seamless experience for users around the world, regardless of their location. Looking at Snowflake by the numbers, we find that it has over 7,200 clients (including clients worth over $287 million) and over $3 billion in backlog. Overall, Snowflake’s Data Cloud manages over 250 petabytes of data.

A look at the quarter ended October 31 of this year, the third quarter of fiscal 23, shows the company’s underlying strength. Quarterly revenue of $522.8 million is up 67% y/y, while the $3 billion in cumulative work provides a solid indication of future business – and represents 66% growth over the year-ago quarter. The company has a net revenue retention rate of 165%, indicating a satisfied customer base.

Ultimately, Snowflake beat expectations with a non-GAAP net income of 11 cents per diluted share. That was nearly 4x the 3 cents reported in fiscal 3Q22 a year ago – and was more than double the 5 cents forecast.

The action, however, has shown a similar pattern to other names in the sector; concerns over the inflationary environment and growth against a backdrop of economic uncertainty has seen technology stocks fall out of favor, and as such, the stock has lost 59% of its value this year.

However, assessing Snowflake’s prospects, Rangan takes a strong bullish stance, seeing the company’s combination of depressed current share price and solid commercial success as the cornerstone of a solid foundation going forward. He writes, “Snowflake is uniquely positioned for an economic recovery due to the consumption orientation of its business model, along with its exposure to several secular tailwinds including cloud migration/digital transformation and increasing prioritization of data-driven operations to improve business processes…. We believe that even better-in-class revenue growth and Snowflake’s commitment to expanding the FCF margin make it an excellent candidate for our turnaround framework.”

The analyst quantifies this outlook with a Buy rating and a $200 price target, implying a 44% upside potential for the year ahead.

Looking at the breakdown of the ratings, based on 17 Buys against 7 Holds, the analyst consensus rates this stock a Moderate Buy. The shares are selling for $138.49 and have an average price target of $187, indicating upside potential of 35% over the next 12 months. (See the Snowflake stock forecast on TipRanks.)

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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investments.

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