monday.com was one of the market's biggest losers today, losing 10.5% of its value and underperforming the S&P500 and Dow Industrial composite indices by 8.0% and 9.0% respectively. The mid-cap Technology company ended the day at $92.47, closing in on its 52 week high low of $85.75 and is 44.69% below its average target price of $167.18. Over the last 12 months, monday.com is down -70.8%, and has underperformed the S&P 500 by 53.5%. The stock has an average analyst rating of buy.
Monday.com does not publish its forward or trailing price to earnings (P/E) ratio because the stock has negative forward and trailing earnings per share (Eps) values at $-1.94 and $-4.17 respectively. Since P/E ratios are share price divided by earnings per share, monday.com has a negative P/E ratio, which is not meaningful besides the fact that it indicates the company is not currently profitable.
When it comes to new businesses -- especially those operating within the technology sector -- investors are often willing to overlook prolonged periods of negative earnings and inflated valuations. But not so in the Technology sector, which has an average P/E ratio of 26.5. If monday.com cannot improve its earnings picture soon, it's unlikely that investors will stay onboard -- unless there are other factors in favor of the business's outlook.
Another metric for valuing a stock is its Price to Book (P/B) Ratio, which is its share price divided by its book value per share. The book value refers to the sum of all of the company's tangible assets and liabilities. Monday.com's P/B ratio of 6.5 indicates that the company is fairly valued when compared to the Technology sector's average P/B ratio of 5.57.
Monday.com is likely to attract many investors on the basis of its strong gross margins, which indicate that it either has an exceptional competitive advantage, or that its particular product or services involve very few direct costs:
| Date Reported | Revenue ($) | Cost of Revenue ($) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2021-12-31 | 308,150,000.0 | 39,013,000.0 | 87.34 | 1.51 |
| 2020-12-31 | 161,123,000.0 | 22,488,000.0 | 86.04 | 1.63 |
| 2019-12-31 | 78,089,000.0 | 11,978,000.0 | 84.66 | n/a |
- Average gross margins: 86.0 %
- Average gross margins growth rate: 1.6 %
- Coefficient of variability (lower numbers indicate more stability): 1.6 %
Don't let the above fool you. Such high gross margins need to be considered alongside the company's operating margins, which take into account overhead:
| Date Reported | Total Revenue ($) | Operating Expenses ($) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2021-12-31 | 308,150,000.0 | 434,275,000.0 | -40.93 | 56.19 |
| 2020-12-31 | 161,123,000.0 | 311,660,000.0 | -93.43 | 21.14 |
| 2019-12-31 | 78,089,000.0 | 170,607,000.0 | -118.48 | n/a |
- Average operating margins: -84.3 %
- Average operating margins growth rate: 38.7 %
- Coefficient of variability (lower numbers indicate more stability): 47.0 %
We can see that in fact, monday.com's significant overhead eliminates its profits from sales entirely. The company is not profitable.
Our final point of analysis is monday.com's free cash flow. While earnings and margins are calculated on the basis of a company's delivered goods, they do not actually represent physical payments that flow into the coffers. The actually money that the company has -- minus its capital expenditures -- is reported as its free cash flow, which for monday.com is as follows:
| Date Reported | Cash Flow from Operations ($) | Capital expenditures ($) | Free Cash Flow ($) | YoY Growth (%) |
|---|---|---|---|---|
| 2021-12-31 | 16,355,000.0 | -11,578,000.0 | 4,777,000.0 | 111.5 |
| 2020-12-31 | -37,175,000.0 | -4,362,000.0 | -41,537,000.0 | -9.16 |
| 2019-12-31 | -36,650,000.0 | -1,402,000.0 | -38,052,000.0 | n/a |
- Average free cash flow: $4,777,000.00
- Average free cash flow growth rate: 51.2 %
- Coefficient of variability (lower numbers indicating more stability): 103.4%
Free cash flow represents the money that monday.com can use to either reinvest in the business or to reward its investors in the form of a dividend. Despite the company's recent cash flows being in the green, investors do not currently receive a dividend.
Monday.com does not meet the traditional definition of a fairly valued company. Unless the company has strong qualitative factors in its favor, most value investors will probably prefer to avoid this stock. Subscribe to our free daily newsletter today to receive more fundamental focused equity reporting!
