Please ensure Javascript is enabled for purposes of website accessibility

Why Alteryx Should Be on Your Radar

By Nicholas Rossolillo - Aug 20, 2019 at 5:45PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This data analytics company is still independent after Alphabet and Salesforce went on their recent shopping sprees.

Data science and analytics have gotten some high-profile attention lately -- from investors and corporate accountants alike. Shortly after Google parent Alphabet (GOOGL -1.34%)(GOOG -1.29%) dropped $2.6 billion on Looker, salesforce.com (CRM 2.60%) went even bigger and purchased Tableau Software (DATA) for a whopping $15.7 billion. Someone obviously let the cat out of the bag: Big data is getting bigger, and making sense of all the digital information out there is a lucrative business.

That's why Alteryx (AYX 0.18%) is so intriguing -- not to mention that its stock is up over 750% since its public debut in early 2017 and that revenue is going at a better than 50% pace. Alteryx runs a lucrative business model, one that is only getting better with time.  

Big data comes into its own

The once buzzy "information age" is now an almost archaic term, but it isn't as if the flood of information it described coming from the web has leveled off. On the contrary, it's proliferating like never before as the world goes digital. Hundreds of millions of new devices are being connected to the internet every year, and complex processes like AI, machine learning, and cloud computing are getting tasked with taking over increasingly crucial business operations.

A human silhouette filled in with illustrated digital data

Image source: Getty Images.

Awash in the data being generated by all those computers and systems, businesses and the people in charge of running them are in need of some help. Alteryx's software helps business analysts get answers that are buried within the data, and it helps end-users get a visual understanding of what it means. It's become a powerful business tool and a profitable investment motif. Just ask shareholders of Tableau and Splunk (SPLK 2.08%).

Alteryx CEO Dean Stoecker had this to say on the company's second-quarter 2019 earnings call:

"In our view, the recent business consolidation in this space is simply validation of what we've communicated for a long time. The data and analytics are core to every business worldwide. And while Alteryx has grown significantly in a relatively short period of time, or as I like to say, we are a great 20-year-old overnight success, we believe that we are still in the early stages of our maturity to fully capitalize on this massive opportunity. For example, based on our analysis, we believe there are approximately 8 million to 9 million potential Alteryx Designer users within the Global 2000 (largest 2,000 publicly traded companies) and we currently have less than 1% penetration within that population."

This is leading to plenty of new customers, and existing ones are increasing their dollars spent. At the end of the second quarter, customer count was up 34% year over year, and net dollar retention rate was 133% -- implying that existing users on average increased their spending with Alteryx by 33%. It's a powerful combination that is leading to exceptional growth and one of the best gross profit margins in the software business, let alone the business world in general.

Metric

Half Year 2019

Half Year 2018

Change

Revenue

$158 million

$102 million

55%

Gross profit margin

89.1%

89.9%

(0.8 pp)

Net profit

$2.70 million

$658,000

310%

Adjusted earnings per share

$0.06

$0.10

(40%)

Data source: Alteryx. Pp = percentage point.   

An eye to a buy, but for the right reason

Alteryx is an established, 20-year-old company enjoying a surge of interest in its product, and it has plenty of potential ahead of it. What could go wrong? For one, after a red-hot run pushing prices up over 120% in 2019 alone, this stock is an expensive one.

Since Alteryx barely runs a profit (on purpose, I might add, as many high-growth companies do to maximize their sales potential), investors are left with the subjective price-to-sales ratio to get a pulse on where the stock is. Valued at 28 times the last year's worth of revenue, it's a spendy price tag that assumes the company's torrid pace will continue for quite some time. For comparison, Salesforce bought Tableau for half that amount, and peer Splunk trades for 9.6 times its trailing-one-year revenue.

Splunk is a much larger big data business, though, and its sales growth "only" clocked in at 36% during its last quarter and carried a total gross margin of 77%. Thus, Alteryx trades at a hefty premium as investors are looking at the future potential rather than the here and now.  

As is typical with high-growth stocks, though, expect Alteryx to be a highly volatile one. Risk-averse investors may want to steer clear, or at least keep the position a small one. As for everyone else, I recommend buying a little bit at a time, building out a larger position via smaller purchases on, for example, a monthly or quarterly basis. Be ready to keep your head in the sand as well. This is a long-term play, not a get-rich-quick scheme -- although Alteryx's returns so far as a public concern might argue otherwise.

In short, big data is only getting bigger, and Alteryx is a key player in helping the world make sense of it all. The company should be on investors' radars as more organizations around the globe adopt new digital processes and put Alteryx to work on keeping track of it all.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Alteryx Stock Quote
Alteryx
AYX
$55.66 (0.18%) $0.10
salesforce.com, inc. Stock Quote
salesforce.com, inc.
CRM
$159.65 (2.60%) $4.05
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOGL
$2,178.16 (-1.34%) $-29.52
Splunk Inc. Stock Quote
Splunk Inc.
SPLK
$98.90 (2.08%) $2.02
Tableau Software, Inc. Stock Quote
Tableau Software, Inc.
DATA
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOG
$2,186.26 (-1.29%) $-28.65

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
330%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/21/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.