Shares of MongoDB (NASDAQ:MDB) rose 18.8% in February 2018, according to data from S&P Global Market Intelligence. The database platform expert's gains hinged around a Feb. 14 analyst upgrade from hold to buy.
Needham analyst Jack Andrews supported his MongoDB upgrade with a more attractive valuation and his own deeper understanding of what makes the business model tick. At the time of this upgrade, MongoDB's share price had fallen 12% in the company's first four months as a publicly traded stock.
As a reminder, MongoDB develops and supports a popular open-source NoSQL database platform, along with a proprietary enterprise version that includes enhanced security and data encryption features. Andrews is not the first analyst or investor to have concerns about this unusual business model.
At the IPO in October, Andrews framed his hold rating around the concept that software companies with an open-source component often have trouble monetizing their license-bearing enterprise systems. One look at Red Hat (NYSE:RHT) might have reminded him that it can be done.
Ironically, Andrews' upgrade lit a fire under MongoDB's stock, which now trades above his $34 price target. Investors from day one are now enjoying a market-beating 22% gain in less than five months. The company is still in that awkward phase of extreme top-line growth but negative earnings and cash flows, making it difficult to pin down a proper valuation on it. I'm staying on the sidelines for now, but will keep an eye on it as MongoDB matures.