Alteryx Stock Is a Recovery Play, But Take Your Time

Should you “buy the dip” in Alteryx (NYSE:AYX)? Not so fast! Shares in the data analytics company tumbled from around $169 per share, to around $110 per share, following weak guidance in August. But, even as shares stabilize, now may may the time to “buy the dip.”

AYX stock
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How so? Well, despite the stock tumbling 38% off its highs, shares continue to trade at a high growth premium. If the company’s growth prospects were still on point, one could justify this rich multiple. But with its projected growth falling, it’s hard to justify entering a position at today’s valuation (price to sales, or P/S, ratio of 15.5).

Sure, if the company beats this guidance, and overcomes its novel coronavirus hurdles, chances are shares will bounce back — and perhaps retrace past highs. But that doesn’t mean shares won’t head lower in the meantime.

Why? Unlike most of the tech space, this company is facing real headwinds, not unexpected tailwinds, from the pandemic. If Corporate America tightens its belt in light of continued tough times, expect shares to head lower as growth falls short of even the muted guidance.

That being said, this isn’t a stock to short. Continued hiccups could mean near-term losses. But at lower prices, shares may be a compelling opportunity. The need for big data isn’t going anywhere. And once we are fully in “recovery mode,” expect this analytics leader to take off once again.

Why The Growth Train Derailed for AYX Stock

In today’s stock market, “growth at any price” is the name of the game. This previously helped Alteryx, as its rising sales helped to justify its rich valuation. But with the tepid guidance derailing the growth train, it’s hard to see how the bull case for this stock can remain.

As InvestorPlace’s Mark Hake discussed Oct. 1, big data plays like this company, along with names like Snowflake (NYSE:SNOW), won’t be winners for investors unless they deliver on their high-growth expectations. As I recently discussed, Snowflake faces big competitive challenges. But at least in its case, the company’s guidance still points to massive top-line growth.

This company? Not so much. It’s bad enough Alteryx’s top line is slowing down; per this commentator, full year guidance implies negative revenue growth in the fourth quarter.

What’s driving such bad guidance? That is to say, why is this big data company floundering, while others are still charging along? With many of its customers highly impacted by the pandemic, it’s getting harder to retain current customers, much less sign on new ones.

The specter of end users tightening their belts on the heels of continued tough times hasn’t impacted SaaS names that much. But with this company openly admitting it’s in a challenging environment, it’s no surprise shares have performed so poorly as of late.

Yet, one can make the argument that these headwinds are already priced in. Not only that, you can argue that now is the company’s “darkest before the dawn” moment. In other words, a sooner-than-expected “return to normal” could get the growth train back into motion.

Alteryx Is a Bet on The Pandemic Recovery

As I said above, the pandemic has largely been a tailwind for big tech. Thanks to the “stay-at-home economy,” big-tech powerhouses have seen their sales accelerate in the “new normal.”

In contrast, many other sectors are struggling to get back to normal. Yet, there’s a silver lining. If you didn’t buy the “pandemic winners” back in March, you missed out. But it’s still early enough to dive into recovery plays.

And, Alteryx is a rare big-tech recovery play. As our own Matt McCall put it late last month, “as normalcy returns, so will demand.” That is to say, analytics is a must for Corporate America. Big business may be tightening belts now, as it rides out the pandemic. But once we return to normal, much-needed investment in big data is back on the table. And, as a leader in this space, this company’s growth train will get back on track.

In short, going long this stock today is a bet on the pandemic recovery. Winning tech stocks may retreat, as their “new normal” tailwinds cool as we revert “back to normal.” But this name? Shares could recover in tandem with other hard-hit stocks.

Wait For Another Pullback Before Diving In

While there’s a valid bull case to be made, keep in mind that valuation may limit how much shares bounce back in the coming year. Given the growth premium still priced in, today’s share price may already accurately reflect its recovery prospects.

With this in mind, what’s the call for Alteryx? There’s opportunity here … but not at today’s prices. Wait for another pullback before diving into shares.

On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Thomas Niel, contributor to InvestorPlace, has written single stock analysis since 2016.

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