{"id":74099,"date":"2023-10-18T15:39:09","date_gmt":"2023-10-18T19:39:09","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/mongodb-hold-off-on-buying-despite-fantastic-results-nasdaqmdb\/"},"modified":"2023-10-18T15:39:15","modified_gmt":"2023-10-18T19:39:15","slug":"mongodb-hold-off-on-buying-despite-fantastic-results-nasdaqmdb","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=74099","title":{"rendered":"MongoDB: Hold Off On Buying, Despite Fantastic Results (NASDAQ:MDB)"},"content":{"rendered":"
\n
<\/picture>
<\/figcaption><\/figure>\n

For MongoDB (NASDAQ:MDB<\/span>), it’s almost like there has been no recession in the works over the past year. The non-relational database company has exceeded expectations in 2023, with revenue growth surging despite a flagging economy. While most other enterprise software peers are reporting decaying sales cycles and increased competition, MongoDB has continued to buck the trend. The company’s progress in building out a fuller ecosystem for AI products also certainly doesn’t hurt.<\/span><\/p>\n

Yet we do have to ask ourselves: how much of this strength is already priced in? Year to date, shares of MongoDB are up nearly 2x already:<\/p>\n

\"Chart\"
Data by YCharts<\/figcaption><\/figure>\n

Valuation is the main drag here, especially in a high interest rate environment<\/h2>\n

I last wrote on MongoDB in June when the stock was trading near $390, issuing a neutral opinion (a downgrade from a prior bullish position). Since then, the stock has declined nearly 10%, and it has released very strong Q2 results that featured a re-acceleration in revenue growth. To me, that’s a usual formula for a buy.<\/span><\/p>\n

But I also can’t ignore the macro. Even if the slowdown isn’t necessarily hurting MongoDB’s sales momentum, it does weigh on MongoDB’s stock – especially when risk-free interest rates have climbed above 5%. Over the course of the past year, I have substantially reduced my allocation to equities and dumped more into short-term U.S. treasuries, making exceptions only for high-quality “growth at a reasonable price” stocks. MongoDB is high-growth and high-quality, but its price is anything but reasonable.<\/p>\n

At current share prices near $363, MongoDB trades at a market cap of $25.89 billion. After we net off the $1.90 billion of cash and $1.14 billion of convertible debt off MongoDB’s most recent balance sheet, the company’s resulting enterprise value is $23.99 billion.<\/strong><\/p>\n

Meanwhile, for the current fiscal year MongoDB has guided to $1.596-$1.608 billion in revenue:<\/p>\n

\"MongoDB<\/span>
\n

MongoDB outlook (MongoDB Q2 earnings release)<\/span><\/p>\n<\/figcaption><\/figure>\n

This puts MongoDB’s valuation at 15.0x EV\/FY24 revenue.<\/strong><\/p>\n

Even if we roll forward multiples to next year, MongoDB remains expensive. Wall Street analysts are expecting MongoDB to generate $1.97 billion in revenue in FY25 (the year for MongoDB ending in January 2025, and representing 22% y\/y growth; data from Yahoo Finance). Against FY25 estimates, MongoDB still trades at 12.2x EV\/FY25 revenue.<\/strong><\/p>\n

I’m not comfortable anywhere above a high single-digit revenue multiple for MongoDB against FY25 estimates. I’d consider buying the stock again if it hits 9x EV\/FY25 revenue, <\/strong>representing a price target of $260 <\/strong>and ~28% downside from current levels (where MongoDB was trading in the May timeframe).<\/p>\n

And in light of MongoDB’s huge valuation, we should also be wary of several fundamental risks the company is susceptible to:<\/p>\n