Yext Inc: Fast-Growing Internet Solutions Stock Could Surge

Yext Inc: Fast-Growing Digital Solutions Stock Could SoarYext Inc: Big Revenue Growth Means Higher Share Price

When it comes to the technology sector, investors can choose the mega-cap stocks, but to add some extra upside potential, picking small-caps make sense.

In the Internet technology space, Yext Inc (NYSE:YEXT) has an attractive risk/reward potential that could return above-average gains to long-term investors.

When companies want to make sure their digital presence on the Web is effective in driving business, Yext can help with the process.

Let’s say a company wants to update their marketing information online. The problem is it can be time-consuming and inefficient.

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But by using Yext Inc’s “Knowledge Engine” platform, the company can, with a click, update its information on more than 100 sites on the platform, including the most popular ones.

Given the massive importance of the Internet for businesses, the tailwinds for Yext’s growth should continue to be strong.

On the chart, YEXT stock is trading just below the midpoint of its 52-week range. It’s up 10.8% this year and up six percent over the past year.

Yext is currently below a key resistance level of $17.72. A breakout could vault it toward $21.00 and $23.00 to start.

Chart courtesy of StockCharts.com

Surging Revenues & Positive Free Cash Flow Are Bullish for YEXT Stock

A look at Yext Inc’s revenue picture over the past five fiscal years (ending in January) looks extremely bullish. During that period, the company more than tripled its revenues, with four consecutive years of growth.

The compound annual growth rate (CAGR) for revenue was an impressive 39.7% during the five-year span. You won’t find too many companies growing at this rate.

Fiscal Year Revenues (Millions) Growth
2015 $60.0
2016 $89.7 49.5%
2017 $124.3 38.5%
2018 $170.2 37%
2019 $228.3 34.1%

(Source: “Yext Inc.MarketWatch, last accessed December 6, 2019.)

And more importantly, the rate of revenue growth for Yext is estimated to hold in the 30% range over the next two fiscal years.

For fiscal 2020, revenue growth is expected to be 31.9% to $301.1 million, followed by 30.5% to $392.8 million in fiscal 2021. (Source: “Yext, Inc. (YEXT),”Yahoo! Finance, last accessed December 6, 2019.)

The key for Yext will be its ability to control the cost side and offer a pathway toward profitability.

The following chart shows Yext Inc’s generally accepted accounting principles (GAAP) diluted earnings per share (EPS) for the past five years.

Fiscal Year GAAP Diluted EPS Growth
2015 -$0.20
2016 -$0.30 -53.4%
2017 -$0.50 -62.9%
2018 -$0.85 -71.5%
2019 -$0.76 10.5%

(Source: MarketWatch, op. cit.)

Yext Inc is expected to report a higher adjusted loss of $0.42 per diluted share in fiscal 2020 but narrow this to $0.34 by fiscal 2021. (Source: Yahoo! Finance, op. cit.)

A positive sign is the significant improvement in free cash flow (FCF) in fiscal 2019, when FCF was closer to being flat.

Fiscal Year Free Cash Flow (Millions) Growth
2015 -$12.7
2016 -$19.3 -52.1%
2017 -$17.0 11.6%
2018 -$36.1 -111.8%
2019 -$0.19 99.5%

(Source: MarketWatch, op. cit.)

So, while Yext works on a path toward positive FCF and earnings before interest, tax, depreciation, and amortization (EBITDA)—along with profitability—the cash burn is not an immediate concern.

Analyst Take

In my view, the strong revenue growth is hard to ignore with YEXT stock.

If Yext Inc can deliver positive FCF and move toward profitability, the company’s shares could follow suit and trend much higher.