Guidance Update Reiterates Why Alteryx Stock Remains a Buy

Tuesday Oct. 6 was an interesting trading day. While the indices swung from nicely green to notably red, Alteryx (NYSE:AYX) remained in positive territory. And when I say “positive territory,” we’re talking about a 28% jump in AYX stock. 

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The stock burst higher on Monday after the close, as the company provided a new update to its business. 

Management raised its revenue guidance for the current quarter and announced a new CEO to take over the helm. Even though founder and CEO Dean Stoecker has done a great job, this gives us two catalysts right off the bat: Better-than-expected business operations and new leadership. 

Breaking Down the Catalysts

First, note that Alteryx stock was hammered in early August thanks to the last time it provided guidance

On Aug. 7, the company beat on earnings and revenue expectations. Despite the pandemic, Alteryx grew sales 17% year over year. Admittedly, that’s a slow growth rate for what is supposed to be a high-growth company. That said, it still grew sales 17% in one of the most disruptive quarters in modern history. That’s pretty good in my mind. 

Regardless of the beat, shares were obliterated, falling more than $47 apiece, or 28.2% in a single day. In the next session, AYX stock fell another 10%. In the session before earnings, shares fell 5.4%. So we’re talking about a three-day loss of almost 40%.

Guidance is what did the most damage. Management expected $460 million to $465 million in full-year sales vs. consensus expectations of $505.1 million. For the third quarter, the company forecast revenue of $111 million to $115 million in sales vs. estimates of $119.3 million. 

The company said: “We emphasize that the guidance is subject to various important cautionary factors … including risks and uncertainties associated with the COVID-19 pandemic.”

In its most recent update however, Alteryx provided guidance for $126 million to $128 million, well ahead of both the prior and current consensus estimates. 

That’s much better than investors had been positioned for. It’s also why the stock rallied so hard despite a tough day for the overall market. With a new leader at the helm, that gives us even more potential with this name. 

AYX Stock Is One to Watch

Admittedly, last quarter’s 17% growth number was well below the Q2 2019 growth rate of 75%. Or the 158% growth rate of Q4 2019. But investors must simply understand the impact that the novel coronavirus has had on business. 

Plus, we don’t invest on a quarter-by-quarter basis. I am looking for long-term secular growth themes that can lead to multi-fold returns. With that in mind, I believe AYX has some opportunity here. 

First, the company is riding a major trend in data analytics. By using automation to do the heavy lifting, Alteryx can make companies more efficient. Now more than ever companies are realizing the power of data. That goes for retailers to energy companies to tech firms. 

Generating that data is the easy part. Making sense of that data — particularly when there are millions or billions of end points — isn’t so easy. Using automated data analytics leverages A.I. to improve efficiency and ultimately, save money. 

We’re in the midst of a digital transformation (DX) and that’s only going to yield more data. That trend was in place before Covid-19 came along, too. Smartphones, 5G, Internet of Things and A.I. are making it so that more data than ever is being generated. That trend has only been accelerating and will continue to do so as more technology becomes available. 

With Covid-19, we now have even more people flocking to technology and leveraging its functions. Working remotely, ordering online, and streaming more videos, for instance. With this digital shift comes data and with data comes the need for efficient analytics. 

And that’s where Alteryx carves out its niche. 

Bottom Line on Alteryx

So many growth stocks have taken off like a rocket ship. Moves that would take quarters or even years are happening in months. That’s great for those who bought in early, but it makes it hard to generate future returns. It also increases the risk of a serious pullback. 

AYX stock is a quality company, but even with this week’s big rally, the stock is not in the same stratosphere as its growth peers. That means it could have some upside opportunity.

Keep in mind, we’re talking about a company that grew its revenue 65% in fiscal 2019, before the coronavirus hit. Admittedly, we can’t look back at “what was” and expect that to translate to “what will be.” But AYX stock is a name that boasts robust revenue growth and turns a profit at the same time. Alteryx has also been free cash flow positive since fiscal 2017. 

While the stock isn’t sporting the same discount it was a week ago, I still think long-term investors will be rewarded with this one. 

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

The InvestorPlace Research Staff member held a long position in AYX.

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