Domo Inc: Why This Battered Data Analytics Stock Can Double

Domo Inc (NASDAQ:DOMO) This Data Analytics Stock Can Double
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Domo Trading at a Massive Discount Means an Opportunity

Increasingly, more companies are warming up to the need to use big data collection as a strategy to make more informed decisions. In particular, the area of advanced data analytics and visualization solutions is huge, and will only get bigger.

And while the sector is dominated by the mega-caps, an intriguing high-prospects small-cap play is Domo Inc (NASDAQ:DOMO).

Domo launched its initial public offering (IPO) in June 2018, trading as high as $47.08 in March 2019 prior to steadily declining to the current low $20s, where I see a decent risk/reward opportunity.

Using Domo’s business intelligence tools and data visualization solutions, clients enable their employees to view key operating data and insights when making decisions.

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The company has over 1,800 clients worldwide, including about 25% that have revenues greater than $1.0 billion annually. Clients with over $100.0 million in annual revenues are the target for Domo.

The below DOMO stock chart shows the downward pressure and failure to hold a key technical support levels.

Chart courtesy of StockCharts.com

The strong rally from the December lows was met with hesitancy highlighted by a failure to hold key support at $25.00. Upcoming support is around $21.20 and $18.77.

DOMO stock is drifting, but I can envision a big jump if the company can deliver growth. Resistance is at $30.50, $32.00, and $38.31.

Upward Bounce Requires a Pathway to Profits for DOMO Stock

In its short reporting history, Domo has shown impressive growth, with revenues close to doubling from fiscal 2017 (ending January 30) to fiscal 2019.

Fiscal Year Revenue (Millions) Growth
2017 $74.5
2018 $108.5 45.6%
2019 $142.5 31.3%

(Source: “Domo Inc.MarketWatch, last accessed August 29, 2019.)

There is some concern because Domo is expected to see its revenue growth rate slide down to 21.8% (to $173.6 million) in fiscal 2020 and to 22.4% (to $212.4 million) in fiscal 2021. (Source: “Domo, Inc. (DOMO),” Yahoo! Finance, last accessed August 29, 2019.)

The decline in the revenue growth rate is not a major concern, since growth companies like Domo generally tend to report more normalized and moderate growth rates after an initial surge.

The key is that the growth continues and Domo can work on narrowing its losses and move toward profitability.

Earnings before interest, taxes, depreciation, and amortization (EBITDA) is negative, but the last two years have seen a lower negative reading.

Fiscal Year EBITDA (Millions) Growth
2017 -$169.9
2018 -$158.6 6.6%
2019 -$127.1 19.9%

(Source: MarketWatch, op. cit.)

Domo Inc is still burning through its cash, reporting generally accepted accounting principles (GAAP) adjusted losses.

Fiscal Year GAAP Diluted EPS Growth
2017 -$6.95
2018 -$6.70 3.6%
2019 -$9.43 -40.7%

(Source: MarketWatch, op. cit.)

The good news is that the losses are expected to narrow. Domo is estimated to narrow its adjusted loss to $4.02 per diluted share in fiscal 2020. The company is expected to further narrow its loss to $2.82 per diluted share in fiscal 2021. (Source: Yahoo! Finance, op. cit.)

Domo’s free cash flow (FCF) has been negative, as expected, but the negative FCF in fiscal 2019 was the best it has been in three years. Higher revenues and lower losses should drive a move toward positive FCF.

Fiscal Year Free Cash Flow (Millions) Growth
2017 -$155.8
2018 -$155.9 -0.1%
2019 -$137.7 11.8%

(Source: MarketWatch, op. cit.)

Analyst Take

The key for Domo Inc will be its ability to continue to grow its revenues and move toward profitability. But given that DOMO stock is down by more than 50% from its high, I see an aggressive opportunity.

Insiders seem to agree. Over the last six months, insiders bought 9.2 million shares over 15 transactions while selling a mere 6,580 shares. (Source: Yahoo! Finance, op. cit.)