Where Will Domo Stock Be In 1 Year?

Dome‘s (DOM -2.68%) the stock price peaked at $97.70 in August 2021, representing a nearly five-bagger gain from its IPO (initial public offering) price of $21 in 2018. But now, the cloud-based data visualization company software trades for around $20.

Ongoing concerns about its slowing growth, lack of profits, and high valuations have been difficult to handle as rising interest rates have pushed investors toward more conservative investments. But could it be worth buying back Domo as it falls below its IPO price? Let’s see where this volatile stock goes over the next 12 months.

How fast does Domo grow?

Domo’s cloud-based platform enables company leaders to oversee and manage their entire business through a mobile app. Its platform combines data visualization services, data management and analytics tools, collaboration features for employees, and its own integrated app store.

Domo is still expanding, but its year-over-year growth in billings and revenue has cooled over the past three quarters. It attributed that slowdown to the impact of macroeconomic headwinds on its deals with large enterprise customers, which partially offset its robust growth with smaller corporate customers.

Data source: Domo. YOY = Year to year.

It expects the slowdown to continue in the second half of the year, with its earnings rising 17% to 18% year over year in the third quarter and 18% to 20% for the full year. That represents the slowest annual revenue growth since its IPO.

However, Domo’s current outstanding performance obligations, or the revenue it expects to generate from its existing contracts over the next 12 months, still rose 23% year over year to $225 million. Therefore, the company still has a clear path towards generating high double-digit sales growth over the next four quarters.

Its margins are still expanding

Domo’s top line is cooling, but it’s also getting more of its revenue from its higher-margin subscriptions. Gross margin for its subscription services also reached a record high of 84% in the second quarter.

Data source: Domo.

It attributes continued expansion to lower customer acquisition costs. Its operating margins remain negative by both GAAP (generally accepted accounting principles) and non-GAAP measures, but its non-GAAP operating margin still rose three percentage points year over year in the second quarter. quarter as it downsizes its enterprise sales teams.

During the conference call, chief strategy officer John Mellor noted that while the business’s reduced sales capacity may dampen its near-term revenue growth, it will also put the company in a “very good position to march toward non -GAAP positive operating margin” and improved cash flow growth.

For the third quarter, Domo expects to narrow its non-GAAP net loss from $0.32 per share a year ago to $0.23-$0.27. It also expects to narrow its net loss from $1.30 per share in fiscal 2022 to $0.88-$0.96 in fiscal 2023. That progress is encouraging, but investors shouldn’t expect Domo to break even anytime soon next 12 months.

Domo’s values ​​finally look attractive

Domo’s slowing growth and lack of earnings could make it an unattractive investment in this tough market for tech stocks. However, it looks incredibly cheap with only two sales this year.

Salesforcewhich owns Domo rival Tableau, is growing at a slower rate than Domo but still trades at five times this year’s sales estimates. Service Today, the cloud-based digital workflow services provider that’s growing slightly faster than Domo, trades at 12 times this year’s estimated sales. Therefore, any positive macro development — which could ease pressure on its business business — could cause the stock to rally.

Domo insiders also bought more than three times as many shares as they sold in the past three months and bought nearly three times as many shares as they sold in the past 12 months. That insider’s warm sentiment further reinforces the notion that its stock is undervalued.

Based on these facts, I believe that Domo stock will likely stabilize near its IPO price and gradually rise over the next 12 months. It’s likely to be a rocky ride, but investors who ride out the near-term volatility could be handsomely rewarded.

Leo Sun has positions in Salesforce, Inc. The Motley Fool has positions in and recommends Salesforce, Inc. and ServiceNow, Inc. The Motley Fool has a disclosure policy.

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