Alteryx (NYSE:AYX) stock is a little-known name that’s benefiting from the data analytics revolution. Tech giants such as Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) and Microsoft (NASDAQ:MSFT) dominate this industry. Yet, even though it’s less than 1% of their size, Alteryx has managed to find a niche.
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However, investors have taken notice of its success and have bid AYX stock higher. But given its valuation and the behavior of the stock in recent months, investors should probably avoid AYX for now.
I have mixed feelings about Alteryx stock. I previously worked with geographic information systems (GIS), and Alteryx’s mapping-related applications made much of my previous job functions obsolete. by dramatically speeding up the analysis process. Today GIS is a more programming-oriented field. Such advances drive the process of creative destruction that has made capitalism so successful.
As an InvestorPlace columnist, it’s my job to stay on top of such trends and pivot accordingly. Now, instead of using Alteryx’s product, I follow AYX stock.
Alteryx Enjoyed Massive Growth Until Recently
AYX launched its IPO in March 2017 at $15.50 per share. After its IPO, Alteryx moved steadily higher for more than two years, peaking at $147.79 per share in August. However, investors began to sell off the stock soon after that, and it has struggled since then. Today AYX stock currently trades around $100 per share.
Data analytics has become lucrative, enabling AYX to grow its profits and boosting Alteryx stock. Wall Street analysts. on average, expect the company’s revenue to surge 91% this year and predict that its earnings per share will soar an astounding 3,000% in 2019. But in the next five years, analysts’ consensus outlook calls for its EPS to climb by an annual average of 40%.
However, the company’s massive growth has made AYX stock expensive. Alteryx stock trades at a forward price-earnings (PE) ratio of more than 117. To justify such a multiple, Alteryx’s profits have to increase close to 100% for the foreseeable future. Alteryx’s profit growth is healthy, but it is not healthy enough to justify the valuation of AYX stock.
Price Trends Appear to Favor the Bears
Both the chart of AYX stock and its momentum appear to favor the bears for now.
On Dec. 11, AYX stock fell by more than 8.5%. On that day, the company’s CFO, Kevin Rubin, delivered a corporate overview at a Raymond James conference. However, he did not report any unexpected news.
AYX stock has not moved significantly since Dec. 11. This indicates traders are not looking to bid Alteryx higher.
Even more concerning, AYX competes against some of the largest tech companies in the world. If Google or Microsoft decides to compete more directly with Alteryx, the latter company could be in trouble.
The one thing going for AYX bulls is that the shares have twice bounced off an area around $86. That happened in late October and early November. If the shares fall to around $86 and then rebound again, traders may want to consider buying AYX stock. However, if it stays near the current $100 per share, or worse, if it falls meaningfully below $86, I see little reason to buy the stock.
Final Thoughts on AYX Stock
Both valuations and price trends indicate that investors should avoid AYX stock at these levels. The popularity of Alteryx’s data analytics products has helped boost AYX stock. However, the shares’ PE ratio has gotten too high, given the outlook of the company’s profit.
With Alteryx’s extremely high valuation, it needs momentum to move higher, but it does not seem to have meaningful upward momentum. Even more concerning, it competes with the largest companies in tech.
Data analytics will remain a hot sector for the foreseeable future, and AYX has benefited from that trend. Still, given the stock’s valuation and the company’s competitive risks, investors should avoid Alteryx stock at its current levels.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.
