Fading a stock that grew its revenues 3.8 times in four years is wrong. Such is the case for Alteryx (NYSE:AYX). The big picture shows that it rallied too fast and has consolidated well. AYX stock has now fallen back into a solid base for bulls to gather strength.
This software company became part of the group that we now call “Covid-19 stocks.” The demand for their products and services soared during the quarantine. Everyone on the planet needed to get online and quickly. As a result, Wall Street bought their stocks in droves.
AYX stock has been under pressure since two earnings reports ago but it’s time to wade back into it.
First we retrace how its price played out this year. Like the entire market, it fell off a cliff in February and bottomed mid March. It then embarked on a 145% rally which eventually died in August. It made great stride since then but it’s still stuck near $110 per share.
The good news is that this a strong support zone. It’s the base for all the best rallies this year and it’s been in contention since the middle of last year. Bulls will not want to lose it easily and will fight hard to hold.
AYX Stock Is Down But Not Out
Fundamentally while AYX stock is not cheap, it is not exorbitantly expensive, either. The company still loses money but the bulls don’t expect a lot from it. The price-to-sales is 16x, which is four times cheaper than other superstar stocks like Zoom (NASDAQ:ZM). They also have a positive forecast for price-to-earnings going forward.
The company is then focused on profits, not just growth. Having visibility on the future path to prosperity is important. This allows for long term investors to have solid conviction owning it through tests.
While on paper Alteryx looks like it’s at a smart entry point, investors need to be cautious. There are extrinsic factors to consider. The equity markets are setting record highs in spite of having no new upside catalysts. It’s like they expect the world to go back to normal overnight.
In reality, the recovery is likely going to take time. Just think of the millions of businesses that are still dead in the water. They will need months to rebuild their pipelines. Some are dead for good and they will never come back.
What’s worse is that some states are rolling out new rounds of closures. California imposed new restrictions on businesses this week. Vaccine progress news is great, but investors have to be realistic with their impact on the streets.
Buyers Be Mindful of Concerns
After two years, the small cap index finally made a new high. This is counter-intuitive behavior given the state of the smaller businesses. It is not right to say that now is the best time for them while struggling to stay open.
I fear that sentiment has swung too far up like it did in early October. A mini correction followed then so caution here makes sense. I don’t expect a complete catastrophe but I like to temper my enthusiasm.
The rhetoric went from extreme doom to elation too quickly. Even when things do improve, we have to expect the phenomena of good news is bad news coming back. When the economic news is good, the Fed will have to be less accommodative. Wall Street will quickly flip sentiment again.
Meanwhile, AYX stock is off its highs but at a spot from which it can remount rallies. Bulls are still in charge and they have solid footing below. I don’t think investors should load up all in positions but it’s a good start.
Options investors can sell the January $90 put. They collect $2.20 now to be long the stock with room for error. This trade does not need a rally to win and breaks even at $87.80 per share.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.