Unlike many of the selloffs seen earlier this year, the tech sector's latest swoon has hit high-flying momentum stocks at least as hard as it has hit less fashionable names.
That doesn't make all of the former momentum stocks screaming bargains -- many of them still trade at pretty high multiples that serve to price in a lot of future growth. However, some names do look more intriguing than they did a couple weeks ago. This includes a number of names in the enterprise cloud app/software-as-a-service (SaaS) space, which until recently was treated by markets as if it could do no wrong.
Here are three SaaS plays that have seen decent haircuts in October thus far. The first name was already having a shaky year, but the last two had been off to the races for much of this year.
1. Box (BOX - Get Report)
October Decline (as of 10/10): 19%
Valuation: Box has an enterprise value (market cap minus net cash) of $3.1 billion. That's equal to just 3.7 times expected fiscal 2020 (ends in Jan. 2020) billings of $827 million.
What's to Like: Though its growth has slowed a bit and competition from Microsoft (MSFT - Get Report) and others remains intense, Box is nonetheless expected to see its billings grow 17% in fiscal 2019 and 20% in fiscal 2020. The company still has a lot of room to increase usage of its cloud content-storage and collaboration platform at many Global 2000-type accounts, and has also seen growing traction for value-added offerings in areas such as data governance and programming interface (API) services for business apps.
After bleeding large amounts of cash during its first years as a public company, Box is now producing positive free cash flow (FCF) on an annual basis. FCF is expected to total $81 million in fiscal 2020, and grow to $111 million in fiscal 2021.
2. DocuSign (DOCU)
October Decline (as of 10/10): 24%
Valuation: DocuSign, which did an IPO in April, has an enterprise value of $7.5 billion. That's equal to 8.2 times expected fiscal 2020 (ends in Jan. 2020) billings of $911 million.
What's to Like: While DocuSign's stock still isn't dirt-cheap, its valuation is now arguably reasonable for a fast-growing firm (billings grew 32% last quarter) with a leading position in a market -- e-signature software and services -- that still has a lot of long-term growth potential. Low e-signature penetration rates in many overseas markets should help DocuSign keep growing at healthy rates, as should its efforts to sell value-added solutions such as products for creating "smart forms" and API services for custom apps.
DocuSign is also already cash-flow positive: FCF is expected to total $45 million in fiscal 2019, and $65 million in fiscal 2020. Moreover, given how soundly DocuSign has beaten analyst estimates during its first two quarters as a public company, current analyst estimates might be conservative.
3. Smartsheet (SMAR)
October Decline (as of 10/10): 24%
Valuation: Smartsheet, which also went public in April, has an enterprise value of $2.7 billion. That's equal to 7.9 times a fiscal 2020 billings consensus of $282 million.
What's to Like: Smartsheet's products, which are used to manage projects and workflows for teams of workers relying on popular business apps, have received stellar reviews from many users. With a lot of the company's deployments at large enterprises involving teams or divisions rather than company-wide usage, Smartsheet still has a lot of room to increase its footprint.
Like DocuSign, Smartsheet is still trading at somewhat-high multiples. And unlike DocuSign, it's still losing money due to heavy sales investments: It currently expects FCF of negative $24 million in fiscal 2019 (ends in Jan. 2019).
At the same time, this is a company that posted 59% annual revenue growth in its July quarter, and is guiding for 48% to 50% fiscal 2019 billings growth. Notably, Smartsheet also recently set a goal of growing its annual revenue, which totaled just $111 million in fiscal 2018, to $1 billion in the next four-to-six years. As is the case with DocuSign, strong post-IPO earnings reports provide reasons to think analyst estimates might remain conservative.
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