D.A. Davidson ups Monday.com to Buy as pullback creates compelling entry point

Investing.com -- D.A. Davidson lifted its rating on Monday.com shares to Buy from Neutral, citing an attractive entry point following a recent pullback in the company's stock price. The company's shares rose nearly 3% in premarket trading Monday. 

The investment bank’s analysts feel confident about the sustainability of Monday.com's cash flows and the growing enterprise adoption of its services.

The upgrade comes on the heels of the company's strong forward guidance for revenue growth and its consistent performance despite broader market concerns.

Monday.com's stock had declined by approximately 20% over the past month, a steeper drop than the 14% fall seen in the iShares Expanded Tech-Software Sector ETF (IGV) during the same period.

According to D.A. Davidson’s Lucky Schreiner, the pullback was seen as an opportunity to reassess the company’s prospects, leading to a more bullish stance.

The project management software maker’s robust guidance for fiscal year 2025, with expected revenue growth of around 25%, was particularly highlighted as a positive indicator.

Schreiner views its growth trajectory as durable, driven by strong demand for its customer relationship management (CRM) product and positive early adoption of Monday Service.

The company's move upmarket has shown success, with an increase in net new $100K customers and improvements in its Net Dollar Retention (NDR) rate for these clients.

Enhancements to mondayDB and growing momentum with partners are also contributing to the company's enterprise adoption.

Further supporting the stock’s valuation is Monday.com’s strong free cash flow (FCF) margins, which reached 30% last year. The company expects this figure to be around 25% in fiscal 2025 as it ramps up investments in sales and R&D hiring. Meanwhile, gross retention remains at record highs, with minimal churn among small and mid-sized businesses.

Should its thesis prove wrong, Schreiner sees downside protection in the company’s guidance, which “implied 100-200bp of FX headwinds, roughly ~$15M, from a strong dollar which has since weakened.”

“Guidance also assumed stable net dollar retention (NDR) of 112% despite three quarters of improvement in that metric factoring in potential macro headwinds. And Monday.com is likely to benefit modestly from new AI usage revenue providing some cushion around results,” he continued.

D.A. Davidson’s price target on Monday.com shares of $350 was unchanged.