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Growth stocks can be a wild ride. Long-term upside usually comes with stomach volatility. Monday.com (NASDAQ: MNDY) currently experiencing ups and downs. At the time of writing, the stock is down roughly 28% from its highs.
That of the company software as a service The business model is disrupting the way employees collaborate in the workplace and additional catalysts such as product expansion and artificial intelligence (AI) could produce long-term growth capable of generating outsized returns. The company is executing at a high level, making this recent dip a buying opportunity.
Here’s what you need to know.
Monday.com’s core business is its cloud-based collaboration software. It’s a low-code, highly customizable platform where people can organize tasks, share information, and integrate automation and applications to improve workplace efficiency. Today, more than 225,000 customers use the product in 200 countries.
The company’s growth model is brilliant. It’s free for the first two people in an organization, so any business can easily try it out. If they like it, the software spreads throughout the company, moving up the price scale as more people use it. This sales process has produced a solid 111% net revenue retention rate, highlighting how customers spend more over time.
Monday.com’s long-term advantage depends on how well it builds on its core project and task management software to penetrate adjacent markets. Since 2022, the company has launched several new products, including a customer relationship manager (CRM) for sales, Developer for product and development teams, and Service for IT and support. Monday.com has integrated various AI tools and features to improve its products, resulting in better user experiences and more loyal customers.
Today, Monday.com generates annual revenue of $906 million and grew more than 32% year-over-year in the third quarter. How high Monday.com’s ceiling is remains to be seen, but its product roadmap indicates its intention to become a do-it-all business software company. Some of the biggest tech companies in the world, such as Adobe i Salesforcebusiness software business.
If Monday.com can consistently convert businesses into paying users and move them up the pricing ladder, it will have a long runway for growth.
Competition is fierce in business software, with so many players it can be difficult to find the best of the bunch. Investors can use the Rule of 40 to identify which companies have high returns. The Rule of 40 is a simple metric that measures a company’s ability to grow without sacrificing profitability. Add a company’s revenue growth rate to its free cash flow margin to calculate the Rule of 40 score.
