IB Net Payout Yields Model

Yext: The Next Cheap Tech Stock

Yext (YEXT) is quickly becoming one of the best ways to play AI powered services. The small tech stock has been a solid buy on dips to $12 since going public about a year ago.

The digital knowledge management company grew revenues at a 37% clip in Q4 and impressively expanded deferred revenues by 57% to $89.5 million. Yext continues to expand subscriptions as customers continue to realize the need for management of digital content delivered to consumers via the app economy and AI powered services.

Where the stock story gets interesting is the valuation equation. Yext compares very favorably to other tech stocks like Okta (OKTA) and Twillio (TWLO) amongst a sample. On a forward EV/S multiple, Yext is the clear value with Okta trading at more than double the multiple.

Some might assume the discrepancy is due to higher growth rates at Okta, but looking at current year growth rates Yext compares very favorably.

Current Year - Revenue Growth
  • Yext = 32.4%
  • Okta = 32.1%
  • Twillio = 28.3%

The stock gets very interesting now that Yext has the highest forecasted growth rate. Now Okta tends to fly past revenue estimates so the year-end numbers may look different. Still, the growth rates are too close together for Yext to trade at this low of a multiple.

Yext needs to work on the EPS losses. A target EPS loss of $0.45 is far too large. If the digital knowledge management company can grow at nearly 35% and cut into those losses this year, the stock won't be stuck at $12 at the start of 2019.

As the year closes, Yext will trade off the nearly $300 million revenue target for FY20 (January). At a 6x EV/S multiple, the stock could easily reach $18.50.

Disclosure: Long YEXT. Please review the disclaimer page for more details. 


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