Why Cloudera Stock Is Cheap and Can Double From Here

 Cloudera Inc Stock Is Cheap
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Cloudera Inc Has an Ugly Stock Chart, But Looks Can Be Deceiving

Cloud stocks got whacked on Thursday, but given some of the astounding moves over the past year, it shouldn’t be a surprise to see some dips.

A mid-cap cloud software application play that has been relentlessly beaten down—and, in my view, doesn’t deserve it—is Cloudera Inc (NYSE:CLDR).

To say CLDR stock has taken a beating by “Mr. Market” would be a major understatement.

Cloudera stock is down 50% from its 52-week high of $20.18, including a 21% sell-off over the past month after offering up soft guidance.

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Chart courtesy of StockCharts.com

The stock is 33% below its initial public offering (IPO) price of $15.00 and could retrench below $10.00 if the downward trend line is extended.

That’s the bad news.

While there are some valid concerns toward Cloudera stock, my view is that the selling has been excessive, and for aggressive traders, the current risk-to-reward is intriguing.

My bullish view is based on my optimism toward the big data analytics segment where the company combines machine learning and advanced analytics.

Cloudera added rival data analytics company Hortonworks, Inc. (NASDAQ:HDP) to create a company with approximately $740.0 million in trailing revenues.

Why My Bull Case Holds for CLDR Stock

As the below table shows, Cloudera’s revenue increased in the last three fiscal years straight (ending January), for a compound annual growth rate of 42.5%.

Fiscal Year Revenue (Millions) Growth
2016 $166.1
2017 $261.0 57.2%
2018 $367.4 40.8%
2019 $479.9 30.6%

(Source: “Cloudera Inc.,” MarketWatch, last accessed April 4, 2019.)

Looking ahead, the combined companies is estimated to produce revenues of $845.3 million in fiscal 2020 and $1.0 billion in fiscal 2021. (Source: “Cloudera, Inc. (CLDR),” Yahoo! Finance, last accessed April 4, 2019.)

Cloudera Inc has been losing money on a generally accepted accounting principles (GAAP) basis, but its $1.21-per-share loss in fiscal 2019 was a four-year low.

Fiscal Year Diluted Earnings Per Share Growth
2016 -$1.56
2017 -$1.44 7.8%
2018 -$3.38 -135.2%
2019 -$1.21 64.3%

(Source: MarketWatch, op cit.)

On an adjusted basis, Cloudera is estimated to narrow its loss to $0.35 per diluted share in fiscal 2020 but turn an adjusted profit of $0.13 and as high as $0.30 per diluted share in fiscal 2021. (Source: Yahoo! Finance, op cit.)

The free cash flow (FCF) turned positive in fiscal 2019 after three straight years of negative FCF. I expect FCF to improve on the higher revenues and movement towards profits.

Fiscal Year FCF (Millions) Growth
2016 -$96.0
2017 -$124.0 -29.1%
2018 -$55.2 55.5%
2019 $24.2 143.8%

(Source: MarketWatch, op cit.)

Analyst Take

The selling in CLDR stock is overdone. I’m encouraged by the merger and feel that those with a longer-term view will be looking back years from now and saying that buying Cloudera Inc at the distressed price was an opportune move.