Why Marketo Is a Market-Beater

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Marketo  (NASDAQ: MKTO  ) closed up 1.2% yesterday after Wells Fargo initiated coverage on the cloud-based marketing software specialist with an outperform rating.

So what: Along with the outperform call, analyst Jason Maynard offered a valuation range of $40-$42 per share on Marketo, suggesting that the stock is trading at about a 25% discount to its intrinsic value. Maynard believes that Marketo is an emerging leader in what he refers to as the "Big Customer Era" -- power shift in favor of the customer across both business-to-consumer and business-to-business segments -- reinforcing investor optimism over the strong tailwinds working in its favor.

Now what: In total, Wells Fargo sees the "big customer" marketing automation space growing to $20 billion in five years and expects Marketo to grab a nice chunk of that.

"We think Marketo has the potential to grow in excess of 25% for the next several years because of the following business drivers: (1) increasing budget allocation for revenue- generating software solutions, (2) aggressive customer acquisition, (3) cross and up-selling in the installed base, (4) product fit for SMBs to larger organizations, and (5) increased penetration in B2C market segment."

More important, with the stock still off about 20% from its 52-week highs and trading at a forward EV-to-sales multiple in the single digits, there seems like plenty of upside to benefit from that bullishness.

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