Investing early in the life of a growth stock can be life-changing, but only if you hold for the long term. Investors who got in on Microsoft's initial public offering (IPO) and held on to it until today have become millionaires with as little as $500 invested. Alteryx, Inc. (NYSE:AYX), a data analytics platform, may not become the next software juggernaut, but its stock has put up an impressive run since it became public less than three years ago.
Before we find out how much money you'd have if you invested in the IPO, let's learn a little more about the business.
Turning data into information
Alteryx makes software that helps data analysts deal with the challenges of turning data into actionable information. Companies have more data than ever before, but getting at it and analyzing it can be difficult. An organization's data may be housed in multiple applications that aren't linked together. Worse yet, it could be in different formats or require information technology personnel to pull the data using tools specific to the application. Standard tools used by business analysts, such as Microsoft Excel, can't handle the millions of rows that need to be culled through to find the gems of analytical wisdom. Alteryx's software addresses all of these issues.
It turns out that analysts who try Alteryx's tools find that they are so powerful and easy to use, they end up raving to their colleagues about it. This word-of-mouth effect is the secret sauce for its land-and-expand model and has driven incredible growth. The company's net-dollar expansion rate has been about 130% for the last 11 quarters, meaning that customers spend 30% more in the current quarter than they did a year ago. Revenue for the most recent quarter grew 65% year-over-year to $103 million, which is 20% more than it did for the entire 2016 fiscal year. New customers are joining on at an impressive 30% year-over-year rate.
The impressive business growth has benefited shareholders too.
IPO shareholders win big
Alteryx went public on March 24, 2017, at $14 per share and an investment of $4,998 would have bought 357 shares. By the end of 2017, the stock had already climbed 81% to over $25. But for the investors who avoided the temptation of a quick buck and continued to hold through to today, those shares would be worth around $100 each or $35,700 total, landing a seven-bagger (seven times the original investment)! This gain even considers that the stock has pulled back over 30% from its all-time high in September 2019.
But you didn't need to get in at the IPO to have market-beating returns. Buying shares any time in 2017 would have, at worst, yielded a great 250% return. So what is the lesson in all of this?
In the wise words of the singer, Tom Petty: "The waiting is the hardest part." Once you buy a great company, achieving multibagger returns like this one requires waiting and holding on to the stock for the long term. Even though this seven-bagger happened in less than three years, you had to avoid selling it as a three-bagger, four-bagger, or even six-bagger. Looking at the growth trajectory of Alteryx today, there's no doubt it will be a much bigger company in another three years. If you are lucky enough to be a shareholder in this growth story, the best course of action may be to let this winner run.