It was a bumpy September for many investors. But with the market now sporting an even larger correction, are shares of Alteryx (NYSE:AYX) in position for buying? Let’s see what’s happening off and on the price chart of AYX stock, then offer a risk-adjusted determination in alignment with those findings.
The market-leading Nasdaq Composite took a bit of a header this past month. The index sank 13% at its worst and finished down 5% for the period. Still, don’t feel too bad for its investors. On the back of fantastic gains in Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Tesla (NASDAQ:TSLA) and other valuation influencers, the bellwether is also up 25% year-to-date.
The large-cap, tech-heavy index has also climbed 67% since the worst of the coronavirus’ impact on Wall Street in late March.
The same good fortune hasn’t been bestowed on AYX investors though.
The Year So Far
To be fair, the software-as-a-service (SaaS) data science and analytics outfit is up 17% in 2020 and just over 50% since its associated Covid-19 low struck on March 17. Gains of that size aren’t historically the kind to take for granted. But it hasn’t exactly been an ordinary year either, right? As well, conditions were much rosier not so long ago for AYX’s shareholders.
At its July high, Alteryx was up 85% on the year and nearly 150% removed from the lows of the stock’s coronavirus-driven bear market. So, what went wrong and why has Alteryx shed 38% since its peak valuation which promisingly placed shares into the sphere of large-cap tech stocks?
September’s notorious bearish seasonality, which did come to fruition this year, is one thing. But that pressure only prompted a monthly decline of 6% in AYX stock. The rest of Alteryx’s overall correction has been tied to investor concerns over substantial deceleration in near-term sales growth. Back in early August, Alteryx’s management cut its revenue outlook well below Street forecasts.
Citing longer customer sales cycles spurred by reduced spending amid the pandemic, AYX’s track record of consistent mid-to-high double-digit sales gains ended abruptly. And in turn, shares well-positioned for the bearish consequences, bowed to that reality. Overly optimistic growth assumptions, dancing around profitability, a nosebleed sales multiple and pricing today which would still would make a value investor shudder, it’s not entirely surprising Alteryx has been welcomed firmly back into the mid-cap camp.
AYX Stock Weekly Price Chart
Source: Charts by TradingView
The big question for AYX investors is if the company’s business can reassert some of its former glory in 2021 and beyond. There are no guarantees, but many analysts are upbeat on its longer-term prospects. A nearby move into a cloud-based product for its core platform confirmed during at earnings is a promising step towards that end.
Today though, and despite the sell-off of the past couple months, AYX remains expensive-looking. There’s no two ways around a forward P/E of 119 and multiple which values shares a full 15.5x sales. As such, waiting for a stronger pullback has proven to be popular advice among investors with an eye on a future. But will the recommendation prove prescient?
The other thing(s) investors might consider is the ability for select growth stocks to remain richly valued. That includes stocks like Alteryx, which hit a quarterly bump in the road. The narrative turns cautious, but traditional metrics remain rich. Also (and specific to AYX right now), waiting on the sidelines turns a blind eye to Alteryx’s decent technical-based value proposition on the price chart.
Currently, shares have confirmed a bottoming weekly candlestick pattern inside a layered Fibonacci support zone. The formation continues to hold longer-term uptrend support and is backed by a bullish oversold crossover stochastics signal. And with stocks purported to be forward-looking pricing mechanisms, the opportunity to use a hedged AYX stock collar strategy (where you own stock, then buy puts and sell calls) which helps work around today’s valuation concerns, while still being in it to win it, is worthy of consideration.
No stocks owned: On the date of publication, Chris Tyler did not hold, directly or indirectly, positions in any of the securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.