Time to Buy the Dip in Alteryx Stock … Again!

Alteryx (NASDAQ:AYX) stock plunged in early November after the data analytics company reported solid third-quarter numbers but also delivered a dismal fourth-quarter guide which spooked investors. AYX stock tanked more than 20%.

The Alteryx (AYX) logo is displayed on a smartphone screen.
Source: rafapress / Shutterstock.com

Sound familiar?

It should — it’s exactly what happened last quarter.

Alteryx stock plunged more than 25% in early August after the company reported solid second-quarter numbers alongside a dismal third-quarter guide which spooked investors. AYX stock proceeded to find its footing around the $110 level, before management hugely revised its third-quarter guide higher in October, and shares soared by more than 40%.

The same thing will play out this time around.

So buy AYX stock on this irrational and short-lived post-earnings dip.

Here’s a deeper look.

A Conservative Management Team

The reality with Alteryx is that you have an exceptionally conservative management team that always under-promises and over-delivers.

Just look at the company’s earnings numbers over the past several years. In nearly four years as a public company, Alteryx has never missed on quarterly revenues, usually topping estimates by about a few million bucks every single quarter.

This trend of under-promising and over-delivering has been exacerbated by the Covid-19 pandemic.

That is, today’s uncertain and volatile business operating environment has made an already naturally conservative management team, ultra-conservative.

Alteryx management’s initial third-quarter guide called for $113 million in revenues, equating to roughly 9% year-over-year growth. Three months later, the actual numbers came in at $130 million in revenues, for about 25% year-over-year growth.

With this context, we have to take management’s dismal fourth-quarter guide calling for revenues to drop about 5% year-over-year next quarter with a big grain of salt, especially since management said on the call that this guide assumes no improvement in macroeconomic conditions.

But, in reality, macroeconomic conditions are already dramatically improving, and will continue to improve over the next few months.

Management will once again sharply revise its fourth-quarter guide higher sometime in December. AYX stock will bounce back.

Still a Long-Term Winner

Zooming out, Alteryx stock is still a very attractive long-term winner.

Data-driven decision making is the future of the business world. Alteryx provides an end-to-end platform, which enables this data-driven decision making, by giving enterprises the analytics and tools necessary to turn raw mountains of messy data into clean, actionable insights.

Importantly, Alteryx does this in a friendly, low-code, easy-to-learn and easy-to-use software environment. That is, you don’t need to be a data scientist or have a computer science degree in order to make use of the Alteryx platform. Alteryx enables regular Joes to make advanced data-driven decisions.

That’s big, because most companies don’t have big data skills. All the data scientists in the world are going to work for Facebook (NASDAQ:FB) and Microsoft (NASDAQ:MSFT), while only 6% of large companies and very few small businesses employ even a single data scientist.

So, as we pivot into a data-driven future, most companies are going to lean into low-code, easy-to-use data science platforms to help them make data-driven decisions. Alteryx is the best-in-breed provider of these solutions — and, to that end, the company is going to sell a lot of enterprise seats to its data science platform over the next several years.

The company just hit a rough spot amid the pandemic because businesses leaned up their budgets. But we have two highly effective Covid-19 vaccines in the pipeline, and it increasingly appears that “normal” is coming back at some point in 2021. As “normal” returns, businesses will re-up their budgets, and the Alteryx growth narrative will once again fire on all cylinders.

So, amid this ephemeral choppiness, it’s best to buy AYX stock and ignore the noise.

Valuation Upside for Alteryx Stock

My numbers suggest AYX stock has upside to $200 over the next 12-plus months.

Thanks to secular big data tailwinds, built-in Alteryx platform advantages and tremendous scalability inherent to the company’s software business model — which features 90% gross margins — I’ve long held the belief that Alteryx is a 10%-plus revenue growth company 15%-plus profit growth potential over the next five to ten years.

I’m slightly upping those estimates to account for a quicker-than-expected revival in the company’s business momentum in the second-half of 2020 and first-half of 2021.

Bottom line, I’ve raised my 2030 earnings per share target for Alteryx from $8.45 to $10.15. Based on a 35-times forward earnings multiple and an 8.5% discount rate, that implies a 2021 price target for AYX stock of nearly $185.

Bottom Line on AYX Stock

Alteryx stock is a long-term winner going through a near-term rough patch. This is a classic bullish set-up for long-term investors.

Buy the dip. Ignore the noise. Hold through the storm. Let the secular tailwinds come back to life in 2021. Watch the stock rebound to its previous highs.

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

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Article printed from InvestorPlace Media, https://investorplace.com/2020/11/time-to-buy-the-dip-in-alteryx-stock-again/.

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