On Tuesday, JPMorgan (NYSE:JPM) reaffirmed its Overweight rating on Smartsheet Inc . (NYSE: NYSE:SMAR) stock, maintaining a positive stance on the company's stock despite acknowledging potential short-term challenges.
The firm highlighted that while the consensus expectations for Smartsheet's first-quarter performance are generally attainable, the sluggish spending environment for small and medium-sized businesses (SMBs) could hamper growth. Additionally, recent changes in Smartsheet's sales leadership might temporarily affect its sales activities.
The analyst from JPMorgan pointed out that net-new Annual Recurring Revenue (NNARR) growth is expected to remain subdued in the first half of the year, with a possibility of improvement in the latter half if go-to-market (GTM) strategy changes gain traction.
Despite these concerns, the firm anticipates continuous profitability, supported by a recent reduction in hiring activity observed over the three months ending in April.
An interesting development noted by JPMorgan is Smartsheet's potential monetization of its active collaborator base, which could positively influence future growth.
However, the firm considers it premature to incorporate this factor into their valuation. Investor expectations are perceived to be low for the upcoming quarterly results, with a focus on the conservatism of the reported figures.
JPMorgan concluded its assessment by stating that although Smartsheet may require a few quarters to regain its momentum, the company's current valuation, approximately 4 times its enterprise value to CY25E (Calendar Year 2025 Estimated) revenue and around 20 times its enterprise value to CY25E unlevered free cash flow, remains below the levels seen in recent software mergers and acquisitions. This valuation underpins JPMorgan's continued Overweight rating on the stock.
InvestingPro Insights
In light of JPMorgan's positive outlook on Smartsheet Inc. (NYSE: SMAR), recent data from InvestingPro further enriches the investment narrative. With a market capitalization of $5.46 billion, Smartsheet is positioned as a significant player in the software space. Notably, the company's gross profit margin stands impressively at 80.54% for the last twelve months as of Q4 2024, underscoring its ability to maintain profitability on its offerings. This aligns with JPMorgan's recognition of Smartsheet's potential for continuous profitability.
Furthermore, two InvestingPro Tips for Smartsheet that investors might find valuable include the company's strong balance sheet, which holds more cash than debt, and the expectation that net income is predicted to grow this year. These insights suggest a robust financial standing and an optimistic outlook for the company's earnings potential, which could be pivotal for investors considering the stock amidst a challenging spending environment for SMBs.
For those looking to delve deeper into Smartsheet's financials and future prospects, InvestingPro offers additional tips and metrics. Interested investors can take advantage of a special offer using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With 15 analysts having revised their earnings upwards for the upcoming period, there are more insights available on InvestingPro that may guide investment decisions surrounding SMAR stock.
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