Shares of Domo (NASDAQ:DOMO) recently rallied to all-time highs after the cloud analytics software provider's fourth-quarter numbers dazzled investors. Its revenue rose 31% annually to $39.4 million, beating estimates by $1.6 million.

Domo's non-GAAP net loss narrowed from $39 million to $25 million, or $0.94 per share, which also topped expectations by $0.30. On a GAAP basis, its net loss narrowed from $41.2 million to $29.9 million, or $1.13 per share.

A woman examines business data.

Image source: Getty Images.

For the full year, Domo's revenue rose 31% to $142.5 million. It expects its revenue to rise about 22% in fiscal 2020, which matches Wall Street's expectations. It expects its non-GAAP net loss to narrow from $8.31 per share to $3.99-$4.07, which also tops the consensus forecast for a $4.08 loss.

Domo's headline numbers look solid, but investors might be reluctant to buy this stock at these levels. But if we take a closer look at Domo's business, we'll notice that it's surprisingly cheap relative to its growth potential.

Check out the latest earnings call transcript for Domo.

What does Domo do?

Domo's cloud-based OS lets executives manage their entire companies from their smartphones through real-time data and management tools. Employees can also access the platform's analytics tools to make business decisions.

Domo's expanding ecosystem includes the Mr. Roboto AI platform for answering questions, the Buzz collaboration suite for employees, the Adrenaline data warehouse, the Domo Integration Cloud, and the Domo Media Suite, which is optimized for creating media campaigns. Domo also lets developers integrate its features into apps through DomoBot "connectors" and its Fusion data transformation engine. Those apps are then hosted on Domo's own app store.

Domo serves over 1,500 organizations. Last quarter, its number of large enterprise customers (those that generate over $1 billion in annual revenue) rose 19% annually to 447. Domo generates about half of its revenue from those large customers, which include Uber, Vivint, and eBay.

About 80% of Domo's annual recurring revenue comes from customers that pay over $50,000 in recurring revenue. The stickiness of that customer base should enable Domo to keep cross-selling new services to boost its revenue per customer.

A visualization of business data in a meeting room.

Image source: Getty Images.

How fast is Domo growing?

Domo's growth in billings and revenue remained robust throughout its first three quarters as a public company:

Metric

Q2 2019

Q3 2019

Q4 2019

Billings

35%

29%

26%

Revenue

32%

30%

31%

Source: Domo quarterly reports.

The other way to gauge Domo's strength is through its subscription revenue, which accounted for 81% of its top line during the fourth quarter. The gross margin of its subscription revenue also climbed ten percentage points annually to 74%. Over the past three quarters, Domo's subscription revenue held steady at over 80% of its revenue as its gross margin consistently expanded.

Metric

Q2 2019

Q3 2019

Q4 2019

Subscriptions as a percentage of total sales

82%

83%

81%

Subscription gross margin

71%

73%

74%

Source: Domo quarterly reports.

Domo also reduced its operating expenses 11% annually last quarter by reducing personnel and marketing costs. Those improvements, along with the expanding gross margin of its subscription services, should help it narrow its net losses throughout fiscal 2020.

Why Domo still looks cheap

At $42, Domo trades at six times this year's sales. That P/S ratio is low relative to other cloud service providers -- like Tableau, Veeva and Salesforce -- which generate comparable sales growth:

Company

Est. sales growth (current fiscal year)

P/S ratio (current fiscal year)

Tableau

39%

8

Veeva

18%

17

Salesforce

21%

8

Domo

22%

6

Source: Yahoo Finance, March 17.

A P/S ratio admittedly isn't as accurate as a P/E ratio for valuing a stock, but we know that Domo's losses are narrowing and it could eventually turn a profit.

The bottom line

Domo isn't a stock for queasy investors, since its lack of profits makes it a soft target during a market downturn. It's also vulnerable to competition from larger companies like Salesforce.

However, Domo's core platform is disruptive, its expanding ecosystem is sticky, and its stock is cheap relative to its revenue growth. Therefore, I think investors should still consider starting a position in Domo at its all-time high.