One of today's standouts was MongoDB, a software company whose shares are up 4.8%, outperforming the Nasdaq by 4.0%. At $390.93, the stock is 7.52% above its average analyst target price of $363.6.
The average analyst rating for the stock is buy. MDB outperformed the S&P 500 index by 5.0% so far today, and by 13.0% over the last year with a return of 28.3%.
MongoDB, Inc. provides general purpose database platform worldwide. The company is a technology company. Valuations in the technology sector are often very high, as investors are willing to overlook gaps in the fundamentals if they believe a company’s innovations can dominate or create new markets.
MongoDB does not release its trailing 12 month P/E ratio since its earnings per share of $-4.71 were negative over the last year. But we can calculate it ourselves, which gives us a trailing P/E ratio for MDB of -83.0. Based on the company's positive earnings guidance of $2.09, the stock has a forward P/E ratio of 187.0. As of the first quarter of 2023, the average Price to Earnings (P/E) ratio of US technology companies is 27.16, and the S&P 500 average is 15.97. The P/E ratio consists in the stock's share price divided by its earnings per share (EPS), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.
To better understand the strength of MongoDB's business, we can analyse its operating margins, which are its revenues minus its operating costs. Consistently strong margins backed by a positive trend can signal that a company is on track to deliver returns for its shareholders. Here's the operating margin statistics for the last four years:
| Date Reported | Total Revenue ($ k) | Operating Expenses ($ k) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-01-31 | 1,284,040 | 1,281,391 | -27 | 18.48 |
| 2022-01-31 | 873,782 | 903,654 | -33.12 | 6.57 |
| 2021-01-31 | 590,380 | 622,608 | -35.45 | -1.11 |
| 2020-01-31 | 421,720 | 444,230 | -35.06 | n/a |
- Average operating margins: -32.7 %
- Average operating margins growth rate: 6.3 %
- Coefficient of variability (lower numbers indicate less volatility): 12.0 %
MongoDB's financial viability can also be assessed through a review of its free cash flow trends. Free cash flow refers to its operating cash flows minues its capital expenditures, which are expenses related to the maintenance of fixed assets such as land, infrastructure, and equipment. Over the last four years, the trends have been as follows:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cashflow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-01-31 | -12,970 | -7,244 | -20,214 | -1751.1 |
| 2022-01-31 | 6,980 | -8,072 | -1,092 | 97.99 |
| 2021-01-31 | -42,673 | -11,773 | -54,446 | -64.47 |
| 2020-01-31 | -29,540 | -3,564 | -33,104 | n/a |
- Average free cash flow: $-27214000.0
- Average free cash flow growth rate: 11.6 %
- Coefficient of variability (lower numbers indicating more stability): 82.4 %
If it weren't negative, the free cash flow would represent the amount of money available for reinvestment in the business, or for payments to equity investors in the form of a dividend. While a negative cash flow for one or two quarters is not a sign of financial troubles for MDB, a long term trend of negative or highly erratic cash flow levels may indicate a struggling business or a mismanaged company.
Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts. As of the first quarter of 2023, the average P/B ratio for technology companies is 6.23. In contrast, the average P/B ratio of the S&P 500 is 2.95. MongoDB's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 34.8, so it's likely that equity investors are over-valuing the company's assets.
Since it has a negative P/E ratio, an elevated P/B ratio, negative and highly variable cash flows on an upwards trend, MongoDB is likely overvalued at today's prices. The company has poor growth indicators because of a negative PEG ratio and consistently poor operating margins with a positive growth rate. We hope you enjoyed this basic overview of MDB's fundamentals. Make sure to check the numbers for yourself, especially focusing on their trends over the last few years.
