On Wednesday, Citi adjusted its stance on monday.com Ltd. (NASDAQ:MNDY (NASDAQ:MNDY)) stock, downgrading from Buy to Neutral and reducing the price target to $250 from $277.
The move comes amid observations of slowing demand and a less significant impact from recent price increases, which add risk to the near-term (NT) outlook. This contrasts with what is perceived as high investor sentiment and valuation.
The firm acknowledges monday.com's strong position in terms of new product expansion, go-to-market efficiency, and spend consolidation, especially in the medium to long term (MT/LT).
However, Citi indicates that investor expectations for the influence of price increases on calendar year 2024 growth might be overly optimistic in the near term. This has led to a view of a more balanced risk-reward at a premium valuation, prompting the downgrade to Neutral.
Citi's analysis is informed by recent partner conversations and web traffic analysis, which suggest a deceleration in demand, extended deal cycles, and increased resistance to the company's recent price hikes. Additionally, web traffic data points to a slowdown in user growth, which the firm believes is not currently factored into the stock's valuation.
Despite monday.com's performance over the past year, outperforming its industry by 21 points as of April 9, 2024, and trading near the top end of its two-year range on enterprise value/revenue, Citi anticipates incremental risk to the company's results in the near term.
The firm expects that the first quarter 2024 earnings report, anticipated in early May, will likely reveal lower results or guidance than what investors are currently expecting, due to the identified slowdown.
InvestingPro Insights
In light of Citi's recent downgrade of monday.com Ltd. (NASDAQ:MNDY), it's crucial to consider various financial metrics and analyst insights that may provide a broader perspective on the company's potential. According to InvestingPro data, monday.com holds a market capitalization of $10.56 billion, indicating a significant presence in its sector. Despite a negative Price/Earnings (P/E) ratio of -5.51K reflecting its current lack of profitability, the company's gross profit margin remains robust at 88.95% for the last twelve months as of Q4 2023. This high margin underscores the company's efficiency in managing its production costs relative to sales.
Moreover, the revenue growth for the same period stands at an impressive 40.59%, showcasing the company's ability to increase its sales figures substantially. Two notable InvestingPro Tips highlight that monday.com holds more cash than debt on its balance sheet and is expected to see net income growth this year. This suggests a solid financial foundation and potential for improved profitability, which may reassure investors concerned about near-term risks. Additionally, with 14 analysts having revised their earnings upwards for the upcoming period, there's a sense of optimism about the company's future performance.
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