This Stock Could Rise 50% Under the Right Circumstances
The cloud segment is massive and is only going to get bigger. There are numerous ways to play the cloud, but many companies in the sector focus on various types of cloud business applications, including small-cap MINDBODY Inc (NASDAQ:MB).
With a stock price of around $27.00 and a market cap of $1.21 billion, the company is easily outperforming the S&P 500 and NASDAQ.
MINDBODY Inc offers a cloud-based integrated software and payments platform to over 58,000 businesses and 326,000 wellness practitioners in over 130 countries. The platform offers practitioners and fitness operators a specialized third-party platform to more effectively manage and grow their businesses. In this way, the client doesn’t have to spend time and capital to develop in-house applications.
MINDBODY is firing on all cylinders, with impressive revenue growth and a move toward turning a profit in 2018.
MB stock is just off its 52-week high of $29.75 and has delivered a 95% advance over the past year and 27% year-to-date. A look at the below chart of MINDBODY stock shows the strong rally triggered by a bullish double bottom, with the first bottom in August 2015 and the second in February 2016.
Chart courtesy of StockCharts.com
The MB stock rally hit a snag after hitting $26.00, and is currently stuck in the $26.00–$28.00 range, searching for a breakout to the $30.00 level.
We need to see the relative strength index (RSI) and moving average convergence divergence (MACD) strengthen in order for MB stock to break higher.
My Analysis of the Fundamentals Sees Higher MB Stock Price
The upward movement in the price of MINDBODY stock is supported by strong underlying fundamentals. Revenues increased in three consecutive years to just over $139.0 million in 2016, representing a strong three-year compound annual growth rate (CAGR) of 41.87%.
Also impressive is the gross margin expansion from 55% in 2013 to 69% in 2016. The results indicate that MINDBODY is controlling the cost side as revenues ramp higher and suggests increased profitability if the trend continues.
MINDBODY Gross Margins
Looking ahead to the next two reportable years, MINDBODY is slated to grow revenues by another 30% to $180.73 million this year, followed by 25.10% to $226.1 million in 2018. (Source: “MINDBODY, Inc. (MB),” Yahoo! Finance, last accessed June 15, 2017.)
Some may be concerned about the lack of profits but, if all goes well, MINDBODY could deliver profits in 2018. The consensus estimate is $0.16 per diluted share, with the seven estimates ranging from $0.06 to a high of $0.30 per diluted share. (Source: Ibid.)
The quarterly results have been impressive, with MINDBODY managing to beat the consensus earnings per share (EPS) in eight consecutive quarters. The average beat over the past four quarters was 36%.
Much of what happens to MB stock will depend on whether it can continue to deliver outperformance.
If, for instance, MINDBODY can achieve the high estimate of $0.30 per diluted share for 2018, the forward multiple would decline to an attractive nine times, implying an undervalued situation at the current levels. Even a 50% surge in MB stock wouldn’t be outrageous.