MongoDB (NASDAQ:MDB) is on a roll. Investors have bid the stock's value 43% higher over the past 12 months and more than 300% since its IPO over two years ago. However, though shares are up 43% over the past year, they're 30% below a 52-week high of $184.78 achieved earlier this summer. Could this recent pullback be an opportunity for investors to buy shares of a fast-growing company and profit over the long haul?

As investors ponder whether MongoDB is a buy, here are three catalysts to consider. These three aspects of the cloud database management company's business provide insight into important levers for MongoDB.

A diagram showing three laptops connected to a cloud

Image source: Getty Images.

Atlas is growing rapidly

While MongoDB's 52% fiscal third-quarter year-over-year revenue growth rate is impressive in its own right, it doesn't give investors the full picture. Within MongoDB's business is a product growing much faster than consolidated revenue. The tech company's fully managed database management product called Atlas saw its revenue increase 185% year over year in fiscal Q3. This put the important product at 40% of total revenue.

Atlas' success is fueled by both its "strong product market fit and a clear market shift among customers of all sizes for a fully managed [...] cloud database offering," said MongoDB CFO Michael Gordon during the company's fiscal third-quarter earnings call earlier this month. Even better for investors, Gordon believes Atlas' strong momentum will continue. He noted that current market trends and the company's operational initiatives to capitalize on opportunities to expand and improve the cloud product "can drive continued strong growth in Atlas for the foreseeable future."

Atlas' gross margin is improving

At first glance, MongoDB's narrowing gross margin may be concerning to some investors. It's non-GAAP (adjusted) gross profit margin narrowed from 77% in the year-ago quarter to 72% in its third quarter of fiscal 2020. This is, in part, because Atlas operates at a lower gross profit margin than the rest of MongoDB's business. The fast-growing product, therefore, is weighing on MongoDB's gross profit margin.

But investors should note that Atlas' gross margin is improving. While MongoDB doesn't break out Atlas gross margin specifically, management noted in its most recent earnings call that the company is seeing "greater efficiency and scale in our Atlas business." Further, management says it now only expects a "modest reduction" in its consolidated gross margin going forward as Atlas grows to represent a larger portion of revenue. This implies that, as the product scales, Atlas' gross margin is moving to a level closer to the company's consolidated gross margin.

Improving free cash flow

Finally, investors should note that while MongoDB isn't profitable yet, its negative free cash flow is improving. For the nine months ending Oct. 31, 2019 free cash flow was negative $24.1 million. This compares to negative $36.2 million in the nine months ending 2019. Even more impressive, its negative free cash flow as a percentage of revenue improved from negative-22% in the nine months ending Oct. 31, 2018, to negative-8.5% in the nine months ending Oct. 31, 2019.

While management's commitment to investing aggressively in the growth opportunities could prevent the company from becoming free cash flow positive in fiscal 2020, MongoDB is likely to move closer to this important financial milestone during the year.

Of course, even with these important catalysts, it's still difficult to justify MongoDB's price-to-sales ratio of 19. So even though the company's business will probably benefit from these important catalysts in 2020, investors may want to consider looking for a bigger pullback in the stock price before they pull the trigger on this growth stock.