Data integration, System integration, Extract, transform, load, Business intelligence, Information technology Alteryx (AYX) Stock Analysis | Stocks to buy now | Undervalued Stocks in 2021
Then we’re going to be looking at the pathway for this company to reach multiples of its current valuation. Lastly, we’re going to be touching its leadership and see whether this company has the right leader to make this multiplier a reality. Then i also have prepared some financials and as well as the valuation looking at the intrinsic valuation through a dcf model that i’ve prepared specially for this video and before i begin, i appreciate if you give this video an early thumbs up to help out with the Algorithm, at the same time, if you guys are new here and have not subscribed, do consider subscribing if you like, stock analysis, videos like this and join the family. Lastly, if you have any company, you want me to review or have any feedback for these videos. Please let me know in the comments down below i read every of your comments and will be sure to reply to them as soon as possible without further ado. Let’S get right in. Allow me to introduce alteryx within one minute. This company was founded in 1997 and has a really large existing customer base. This company is a software company that specializes in data science and data analytics specifically for data analytics or bi, with an easy way to prepare blend and visualize. All data sources, as well as their ability to apply advanced, predictive and spatial analytics without coding, alteryx, helps their client extract maximum value from their data it’s very similar to companies like snowflake and palentia.
Using the processed data customers can make use of it for making decisions and optimizing their current practices to maximize their value. Proposition alteryx has been around for 24 years and their customer base is wide, so they have clearly proven scalability. We will not be talking about scalability, but instead let’s dive deep into their products and compare them with their competitors. There are a few points to why i think alterex products are better than their competitors. The first reason is the ease of use of their software. The alteryx data analytics software operates on the drag and drop basis for data cleansing, mining, etl, spatial analysis, machine learning and other bi related services. Many other data analytics software requires users to have the knowledge of coding languages like sql with python or art. The problem here is that it takes many years of training to become truly proficient in any coding language. Many people don’t have enough time or effort to default into this area. Even if some of the analysts did learn these tools, most of them, probably wouldn’t utilize. The capacity of what they learned in their current roles, analysis using excel doesn’t, require coding knowledge, but it does like many attributes and useful function for true data. Analytics alteryx solves the two problems by removing the need for coding language knowledge, while providing the functionality of a platform that requires them. This is a key advantage, as it removes a lot of barriers from the customers trying out the platform and customers don’t have to spend that much time trying to get proficient in coding languages over a few years, which will save cost and time for companies employing alteryx.
Secondly, alteryx uses workflows to engage with data throughout the etl process and the system allows you to make these repeatable so that you don’t have to waste time on manual processes. A scalable and intuitive user interface makes working in the software fast and easy to look and flexible and diverse data. Discovery and management tools lets you access dozens of data connections and make edits to the incoming data. This function will be very helpful for companies that are customer facing, like airlines, hotels and e commerce, which also help us to consist of a significant percentage of alteryx customer base. The last reason is the ease of integration with other business analytics tools. Atherex has had many partnerships and drone products with other bi companies like snowflake and tableau. This helps alteryx with their shortcomings in their software, for example. One major shortcoming with alteryx is data visualization. You can use alterings to generate reports, but these aren’t accessible to employees who don’t work in data or business intelligence. Instead, alteryx offers analytics templates for loading data into third party visualization platforms like tableau and click, and these software integrate together to make the whole workflow even more streamlined. This is also an important factor for many clients, because many large businesses are likely to be employing more than one bi tool in the it repertoire and easy integration would save them a lot of time and money. Next let’s look at their revenue, multiplying potential through the market and the company itself.
Large companies and corporations around the world are increasingly spending more money each year on business intelligence solutions to gain actionable insights based on data from model intelligence. The business intelligence market was valued at around 20.5 billion in 2020 and is expected to reach 40.5 billion in 2026 and grew at a compound and a growth rate of 12 over the forecast period. This is a pretty fantastic growth rate for any industry and is considered one of the leading high growth industries. Next let’s look at the company itself. The company’s revenue has been growing at over 50 each year, since it was listed in 2017.. Alteryx has compounded its revenue at an impressive annual rate of 61.6 percent from 2014 to 2019.. However, do note that the astounding revenue growth of 92.7 in 2018 was partly because of alteryx adopting new accounting rules in that year. These are really high numbers for any companies and really justifies alterix being a high growth company. I would also like to note on the ability of this company to get their existing customers to increase spending on their existing services. The success can be illustrated through alteryx, impressive dollar based net expansion rate or dmv ers. This is a very important metric to gauge the health of a sas or software as a service company’s business. It measures the change in revenue coming from all the companies customers from a year ago. Compared to today, it includes positive effects from upsells, as well as negative impacts from customers who leave or downgrade anything more than 100 indicates that the company’s existing customers, as a group are spending more with them getting more customers and getting more customers to spend more on Their services it’s quite likely that their revenue can multiply at such a surprisingly high pace.
As of now, the market cup of alterix is just over 8 billion and it’s considered a mid cap company. Personally, i think it would not be difficult for this company to multiply current revenues as it’s, not extraordinarily high right now, let’s also look at their leadership quality. The position of ceo was handed over by the original founder and ceo through mark anderson in 2020. Prior to alteryx mark was the president of palo alto networks where he and the team grew the company from pre ipo in 2012 to become one of the largest security companies in the world prior to palo. Alto networks marked sales and go to market initiatives at f5 networks where he was instrumental in driving the company’s long term. Sustained hyper growth for the past two years mark also served on the altarex board of directors during his tenure on the alteryx board. Mark also played an active role in the company’s operations and strategy. From the viewpoint of experience and expertise. Mark anderson does qualify as a great leader, but effectiveness of his leadership seems yet to be tested. In my opinion, we will still need some time to assess his leadership, but at the same time i note that the legacy left behind by the original founder and ceo dean stoker remains there and we will need some time to see if the company goes in a Better direction, Music and now for the financials of the company. Let’S, look at a few key metrics.
The first metric i’m going to take a look at is the current ratio. The current ratio is the measure of current assets to current debt, and the sweet spot is usually between 1.2 to 2.. The company’s current ratio is 4.02, which indicates that the company is in really good financial health and their assets are able to pay off all financial obligations for the coming year. However, the high current ratio does indicate that the company may not be maximizing their finances through leverage and they could be potentially taking on more debt for higher capital for faster growth. Nevertheless, a number above 1.2 is great and there’s. No significant risk of the company defaulting on their debts in the near future. The next metric i want to point out is the crazy high gross margin this company has. The company has been able to sustain a very high gross margin of over 85 percent. In the past 10 quarters – and these are really really high numbers – these are like monopoly level numbers gross margins are a great indicator of profitability and it’s clear that the company’s products are really profitable, which leads me to another metric, the trend in profits. The company started to turn a net profit in 2018 and has bringing in net income since then. So. The risk of investing in this company is once again minimized, because the company is self sustaining. The cash that they are able to generate is more than enough to cover operations and have some left over.
The company has been generating positive free cash since 2017, and the free cash flow generator each year has been steadily increasing from 15.4 million in 2017 to 19.4. In 2018 and 22.7 in 2017, which is a positive sign, free cash flow generator, asia can be used to model the intrinsic value of a company through the discounted cash flow model. Increasing the free cash flow generated by the company will directly increase the intrinsic value of the company. At the same time, the cash position of the company has been growing really steadily, and the last reported cash power stands at 971 million, which is really solid compared to the market cap of this company cash position of a company is important, as it tells us how Much additional expenditure they can use, in addition to their free cash flows for the year for things like capital expenditure, to expand and grow the company faster. Lastly, for the valuation of the company, we analyze it from two different perspectives: the ps ratio and the intrinsic value of the company through a dcf model are prepared. The current ps ratio of price to sales ratio stands at around 16.. This is roughly in the middle of all ps ratios that alteryx has gone to since the ipod, so, historically speaking, it’s not really high. Comparing the ps ratio to peers in the bi industry, snowflake stands at around 180 c3. Ai has a ps ratio of around 82 and the others are not listed.
In my opinion, if we look at a peer to peer comparison, alteric’s ps ratio is really low compared to pairs in the bi industry, so alteryx is still comparatively cheap. Next let’s look at the dcf model for alteryx disclaimer i’m, not a financial analyst, nor am i finance trade, so this model is definitely not the most rigorous and please don’t hold me for that here’s. A few assumptions i made to get the conclusion i’ve taken the ebitda for 2021 and 2022, using the average analyst estimates and using the trend of the growth of ebitda. I projected the numbers for 2023 and beyond. The abbot. Estimates were projected using the same method. We then assume that the federal tax rate is 21 and for the discount rate, we can actually use a much lower discount rate like six percent, because the federal reserve is not increasing interest rate until 2023 before it’s revealed. But we want to be more conservative and keep it higher at around 10 for this company, because it’s a software company from there, we calculated that the ebitda after taxes and subtract, the capex, which we assume we will grow at 16, along with the revenue growth, as We expect the capex to revenue growth ratio to remain relatively constant to get the free cash flow i’m, using the perpetuity growth model, where we assume that the company stops growing fast after the five years and instead just grows at a perpetual rate of four percent node, Which is just slightly higher than inflation from there we calculate the terminal value in 2026, using the perpetual group formula and discounted by five times to get the present value.
We add up all the free cash flows projected from 2021 to 2025 and the terminal value to reach 12.5 billion by adding the assets and subtracting the liability. We reach a number of around 13 billion, comparing this to the current market cap it’s. Roughly a 52.3 upside from here do take note that this value is likely to be an underestimate since it’s unlikely that this company will stop growing fast after five years and only reach a perpetual growth rate of four percent per year. So there you have it. Altorix is a company with pretty decent financials and he has really really good margins. At the same time, this company is badly beat down during the pandemic and hasn’t recovered much since 2020, so its price seems to be grossly undervalued right now compared to other peers. In the software and business intelligence industry, this company’s price is considered pretty cheap and we have come to the end of today’s video. I hope you have learned something new and found this episode to be useful. Do help me destroy the like button to help me out with the algorithm at the same time, if you guys are new here and haven’t joined the family do consider, subscribing and joining the family. If you’re interested in stock analysis, videos like this and would like to learn more about these companies and if you guys have any feedback or criticisms about my videos, do let me know in the comments down below and i’ll be sure to read them and reply to Them, if possible, remember, invest safe money, never sleeps.
This is easy.