CLDR Stock: Major Sell-Off Spells Opportunity

Cloudera Stock Looks Intriguing on Major Price Erosion
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Cloudera Looks Intriguing on Major Price Erosion

Big data and cloud applications will continue to power technology going forward, as companies search for strategies to power their data. In the small-cap big data segment, a beaten-down stock that offers a great risk-to-reward ratio is Cloudera Inc (NYSE:CLDR). CLDR stock is down 32% this year, including a 16% sell-off over the past month.

Trading at just above its 52-week low of $10.50 and 15% below its initial public offering (IPO) price of $15.00, CLDR stock looks excessively punished by the market.

The current distressed price looks like a bargain, trading nearly 50% below its 52-week high of $22.43 achieved in April 2018.

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Chart courtesy of StockCharts.com

In my view, Cloudera is underestimated by the market.

An early investor in Cloudera was Intel Corporation (NASDAQ:INTC), which paid $31.00 per share for CLDR stock in 2014.

Cloudera’s work with big data combines machine learning and advanced analytics.

In a strategic move in October, Cloudera announced it would merge with competitor Hortonworks Inc (NASDAQ:HDP). The merger is to be completed in the first quarter of 2019. (Source: “Cloudera and Hortonworks shares skyrocket as rivals merge,” CNBC, October 3, 2018.)

The combined company will have about $720.0 million in trailing revenues and a current combined market cap of $3.0 billion.

My Bull Case for CLDR Stock

The financial data and estimates are only for Cloudera. New revamped numbers for the merged company will be available after the merger.

Revenues increased in two straight years from $166.05 million in FY16 to $367.44 million in FY18 for a compound annual growth rate (CAGR) of 48.78%.

Fiscal Year Revenue ($ Millions) Growth
2016 $166.05
2017 $261.03 57.20%
2018 $367.44 40.77%

(Source: “Cloudera Inc.,” MarketWatch, last accessed November 23, 2018.)

Cloudera is estimated to grow revenues by 21.7% to $447.35 million in FY19 and 19.6% to $535.22 million in FY20. (Source: “Cloudera, Inc. (CLDR),” Yahoo! Finance, last accessed November 23, 2018.)

While the expected revenue growth is lower, it’s not a surprise when a company begins to grow its revenue base.

What impresses me is that the losses are narrowing at Cloudera, something you want to see as a company ramps up its revenues.

Cloudera is expected to cut its adjusted loss to $0.50 per diluted share in FY19, followed by an adjusted loss of $0.34 and as low as $0.20 per diluted share FY20. (Source: Ibid.)

The free cash flow (FCF) is negative but fell to a low of $55.2 million in FY18. I expect FCF to improve towards positive as revenues increase and losses narrow.

Fiscal Year Free Cash Flow ($ Millions) Growth
2016 ($96.04)
2017 ($123.95) -29.06%
2018 ($55.22) 55.45%

(Source: MarketWatch, op cit.)

The balance sheet is healthy with no debt and around $378.0 million in cash.

Analyst Take

I favor the big data analytics segment and feel that companies like Cloudera have tremendous tailwinds for growth.

And with the CLDR stock price at what I view as depressed levels, this opens up opportunities for risk-capital investors looking for a bounce in the stock.