Market Volatility seems to summon opinions from all corners of the business world, whether from the talking heads on CNBC or the WSB Reddit gang. While the turmoil is nothing to poke fun of, here at ETR, we stick to our driving motto, "Opinions Only Exist Due to a Lack of Data." So in the face of uncertainty, we refocus on our recent JAN22 data sets to identify a few potential bargains. Graham and Dodd might be dead, and while it is hard to imply their intrinsic value formula on a market full of companies without positive earnings, we can still find vendors that have been caught up in the recent sell-off that retain strong data sets and Positive outlooks. In the immortal words of Al Czervik, "If they're all selling, then BUY!"
HashiCorp, Inc. Let's kick off our bargain shopping trip by alluding to the lead quote above, depicting an early-stage open-source company that is entering the market with a DevOps first strategy. As our ETR community member points out, much like Atlassian, HashiCorp is leading with a developer-centric model, growing their user base and increasing their importance in the DevOps pipeline in hopes to monetize with enterprise-level services and functionalities down the road. HashiCorp is trading at only 2.5X forward sales (as of press time), which represents a material reduction from its IPO valuation just two months back. Based on the recent data sets on HashiCorp, this is a lead candidate for Bargain Hunting, with the ETR Research team stating, "Elevated spending and sentiment data across both the TSIS and ETS surveys, combined with Pervasion growth and strong market positioning yield a Positive debut outlook on the recent IPO vendor."
Elastic NV. In what could be a future version of HashiCorp, we review Elastic, which began as an open-source search tool and is now a full suite of SaaS offerings supporting enterprise search, logging, observability, analytics, and security use cases. Elastic was seemingly the poster boy of the rotation out of growth stocks as the share price is down 29% year-to-date and 43% in the last six months. Despite the sell-off however, ETR data remains very strong for the vendor. In fact, after catching some weakness in the prior report period where ETR stepped down to Neutral on the company, the security data strongly rebounded in this most recent survey. Let's take a look at what the ETR research team had to say about Elastic's data set: "A strong rebound in InfoSec combined with elevated and stable Analytics data leaves Elastic among the best positioned in the Observability group, warranting a Positive viewpoint on the vendor." As of press time, Elastic was trading at 7x forward sales, quite a discount to its direct comp, Datadog at 28x forward sales.
Freshworks, Inc. In the JAN22 Quick Takes, Freshworks debuted with a Positive outlook from the ETR research team. The SaaS player might be fighting in a marketplace with Goliath's like Salesforce and ServiceNow, but its strong data set implies that this is one David worth monitoring. As of press time, shares of Freshworks were trading right around $20-levels, a massive discount to its high-$40s IPO range back in September. While not quite as cheap as Elastic, an 8x forward sales valuation might warrant putting this SaaS play on the watchlist. Let's see what the ETR Research team thought of Freshwork's JAN22 data set: "Freshworkshas has recovered from a period of relatively high churn and continues to register impressive Net Scores as its citation count grows. Consistent adoptions and virtually non-existent negativity warrant a step up to Positive to start 2022."
Deep Cuts: While the trio above has stellar data sets that justify ETR's positive outlooks, this next pair doesn't quite have the same luster but still is intriguing enough for a closer look.
Sumo Logic, Inc. This log management and data analytics company has hit the skids of late, trading at $11 per share as of press time, down significantly from its peak of $40 last February. With a market cap treading water barely above $1 billion, we are clearly talking about a small-cap bargain play here, but one where the data might justify some attention. Within the Analytics sector, Sumo Logic's Net Score increased from 29% to 36% year over year. The percentage of Increase spend indications among our survey takers jumped similarly, while both Decrease and Replace indications lessened. While that Net Score clearly trails leading comps like Datadog and Elastic, it is squarely in the mix with New Relic and actually leads Dynatrace and Splunk. While there is no formal outlook on SumoLogic at this time, the improving data and 3x forward sales valuation might be worth a closer look.
SolarWinds Corp. Yes, that SolarWinds. Ok, ok, enough laughing. I get it, this is a stretch but hear me out. When the SolwarWinds breach became public in Dec 2020, SWI stock went from all-time highs of $25 to sub-$15 levels overnight. That was quite a free fall and one that was justified based on the precipitous decline in the corresponding ETR data sets, exhibiting the lack of spending support within our community. Now here we sit, more than a year later and the stock is actually trading below its security breach levels at sub-$13 levels as of press time, which represents a 4x forward sales valuation. Given the market cap devaluation, one would think that the continued share price declines would be coupled with an equal drop in the vendor's data set, but a cursory glance shows that is not the case at all. While still at zero-to-negative levels, the Net Score for SolwarWinds has actually increased from negative 18% to zero in Networking and Negative 19% to negative 2% in the Infrastructure sector. At the same time, both Decrease and Replacement indications have lessened and Increase indications have improved versus last year. No one is saying that SolarWinds is exhibiting a stellar data set by any means, but there are signs of real stabilization from their all-time lows.
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