Why MongoDB Stock Gained 20% In July

What happened

Shares of MongoDB (MDB 1.93%) flew higher last month as improving investor sentiment fueled a recovery in cloud stocks, and the company benefited from some bullish analyst chatter.

While there is little company-specific news in the database software business, the improving macroeconomic picture favors the stock.

According to data from S&P Global Market Intelligence, the stock ended the month up 20%, though the chart below shows it wasn’t a smooth ride.

Chart showing the major ups and downs of MongoDB in July, where it ended higher than when it started, and outperformed the S&P 500.

^ SPX data by YCharts

What now?

The best day of the month for MongoDB came on July 5, when the stock jumped 13% in high-volume trading. Although there is no news on the company, the Nasdaq fell as oil prices fell below $100 a barrel for the first time since early May, a sign that inflation concerns are easing, helping to stave off a recession. Long-dated bond yields also fell, which helped expensive tech stocks with long-term earnings like MongoDB. That’s because falling interest rates lead to a lower discount rate, making future earnings worth more, according to standard financial models.

The following week, MongoDB stock fell 6.3% after bearish comments from Service Today CEO Bill McDermott weighs in on the broader software sector. That sell-off was reflected in an analyst endorsement as Baird initiated coverage on MongoDB with an outperform rating. Analyst William Power said MongoDB has established itself as the clear next-generation database leader, and sees strong growth ahead with a large addressable market.

Finally, shares jumped in the last week of July as investors responded favorably to comments from Fed Chair Jerome Powell, who said he did not believe the US was in recession. Although the central bank also raised the benchmark interest rate by 75 basis points that day, July 27, stocks rose on hopes that inflation could be brought to heel when does not cause a recession.

What now

MongoDB stock is still down about 40% from its peak, largely for valuation reasons, like much of the cloud software sector. Currently, the stock trades at a still-high price-to-sales ratio of 23 and is unprofitable, although it is growing rapidly.

That valuation means macroeconomics like interest rates and recession forecasts will likely continue to move the stock for the foreseeable future. However, long-term investors should keep an eye on the business’s performance, especially Atlas, its cloud-based database product that has delivered surprising growth.

Jeremy Bowman has positions on MongoDB. The Motley Fool has positions and recommends MongoDB and ServiceNow, Inc. The Motley Fool has a disclosure policy.

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