C3.ai (NYSE:AI) stock was welcomed into the public markets with open arms. However, that did not remain the case.
After a strong open, AI stock rallied more than 80% from its opening day print and topped out near $90 in December.
Further, growth stocks were on a tear (and soon to be in a bear market), while the stock market was doing well after the presidential election.
Originally expected to price between $30 and $34 a share, the IPO price was bumped to a new range of $36 to $38. Finally, it was priced at $42 per share.
When AI stock opened for trading, it doubled out of the gate, shooting to $100. So for it to nearly double again after going public really shows the kind of gains investors were working with.
Like founder Tom Siebel said, many (including him) didn’t know what the capital markets would look like in March of 2020. So to go off with such a bang just several months later is pretty impressive.
Easy Come, Easy Go
Investors were feverishly bidding up all sorts of stocks. New IPOs, SPACs, growth companies — you name it. AI stock fit the bill for big gains and it delivered.
Even after shares topped out, the stock still continued to trend well, putting in a series of higher lows. Minus the abrupt pullback in late December, it was trading really well. Shares even made another run for the highs in mid-February.
However, AI stock failed to make a new high. Then the stock broke below uptrend support (blue line).
It went on a nasty losing streak, falling for six straight sessions and in 13 of 16 sessions. Amid that run, shares also fell in six straight weeks.
Suddenly, those easy gains had evaporated. Shares ultimately fell 74% from the highs.
AI stock is trying to come out of the rut now, though. Even so, the stock is still down more than 66%, trading just north of $50 today.
AI was basically flat for the month of June. If it finishes lower though, it will mark its fourth monthly decline in five months. Now putting together a long base, bulls are hoping that the worst is over.
Shares were creamed from the highs, but the stock put in a nice low in May. At the time, there was some divergence on the Williams %R measure (bottom of the chart).
Further, AI stock ended its streak of lower highs, as shares temporarily cleared $73.70.
It’s obviously not on fire by any means, but AI stock is looking better on the long side. Now we need to see it reclaim its key moving averages and push back above $73.70. If it can do that, perhaps we can get a more sustainable rally to the upside.
Breaking Down AI Stock
I have been following C3.ai for a long time and not necessarily on purpose. Years ago — and I wish I could find it — I watched an interview with its founder and I was very intrigued.
For years, I wished it would come public. Then it did and it exploded out of the gate.
Even with the sizable decline, AI stock still isn’t cheap. But hey, after a 70%-plus decline, how much more can investors ask for?
Analysts expect solid growth from this company over the years. Consensus expectations call for 34% growth to $245 million in revenue this year.
That’s followed by 34% growth in each of the next two years. Assuming roughly in-line results, that gets the company to $441 million in revenue in 2023.
If that happens, it will be an impressive and steady climb higher for the top line. However, AI stock already trades at 24 times this year’s revenue and 18 times next year’s revenue.
While that’s down considerably from its pre-pullback days, that’s still a fairly pricey stock.
Then consider that C3.ai is not yet profitable and isn’t forecasted to be this year or next year, and investors have to really think on this one.
At the end of the day, the valuation is going to bother some investors and keep them from owning AI stock and some won’t think twice about it. Plenty of huge winners over the years have had frothy valuations and went on to find a ton of success.
If you can stomach the valuation, C3.ai is a reasonable investment. If you can’t, that’s okay too — there are other investments with lower valuations.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.