Investors are realizing that the digital transformation is the real deal, as shown in the recent gains for big technology stocks.
And it doesn’t hurt that the shares of Zoom Video Communications, Inc. (Nasdaq: ZM, Rated “C”) and Salesforce.com, Inc. (NYSE: CRM, Rated “B-”) exploded to new highs after reporting monster Q2 earnings results during the past week.
Stock buyers feel bulletproof. And in the long term, they can expect to see those gains continue to grow.
The problem is the short term.
Some stocks have gotten ahead of the near-term fundamental outlook. They’re vulnerable to what technical traders call backing and filling.
This means sideways price action and consolidation. In some cases, it might mean a considerable decline of 4% to 7%.
But that wouldn’t be the worst thing in the world in a runaway stock market. Even good news can be met with selling when shares rally briskly into events.
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For example, after the close last Wednesday, Mongo DB, Inc. (Nasdaq: MDB, Rated “D”), a maker of next-generation databases, reported blowout earnings and raised full year guidance.
Shares initially ticked up 4%, toward $270, but the stock was trading down 4% an hour later.
As the chance of reward soars, risk rises to meet it. More so than ever, it’s important for investors to get the entry levels right.
And right now, the time looks good for Alteryx Inc. (NYSE: AYX, Rated “D+”). This Irvine, Calif.-based company makes a software platform for data scientists, allowing them to plug in data — often without coding — build models and get actionable insights fast.
In the beginning, the company made a name for itself helping large companies like Amazon.com (Nasdaq: AMZN, Rated “B”), Ford Motor Company (NYSE: F, Rated “D”) and The Coca-Cola Company (NYSE: KO, Rated “C”) find market inefficiencies.
It followed those initial wins with a successful IPO in March 2017, offering 9 million shares at $14 apiece on the New York Stock Exchange. At the time, co-founder Dean Stoecker said legacy data analytics was completely broken and Alteryx was ready to fix it.
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Shares doubled from the March lows this year, reaching a high at $182. Then, everything fell apart. Following the second quarter results in August, the stock slumped 30% on weaker guidance.
This decline came despite annual recurring revenue up 40% year-over-year to $430 million and the addition of 271 new enterprise clients during the same quarter.
Alteryx shares dropped again last week, caught up in the broad selloff of tech stocks. Smart investors should see this as an opportunity. The short-term pain won’t last.
Best wishes,
Jon D. Markman
