Alteryx (NYSE:AYX) posted better-than-expected second-quarter results last week, but management forecast revenue growth to decelerate over the rest of the year, mostly because of coronavirus-induced uncertainties. Given that disappointing outlook, Alteryx stock price plunged 28% following the release. Yet with the explosive growth of worldwide data, the long-term potential of the data analytics specialist should remain strong. Thus, at 33% below its recent all-time high, is Alteryx stock now a buy?

An attractive data analytics market

As the world is digitalizing, enterprises must deal with increasing amounts of data. The research outfit IDC anticipates the collective sum of the world's data will grow at a compound annual rate (CAGR) of 61% by 2025.

Alteryx provides solutions for enterprises to analyze their data and make business decisions efficiently, without relying on specialized data scientists. Its core product, Designer, allows easy formatting of data from multiple sources before analyzing it. It also automates tasks that would remain time-consuming within spreadsheets such as Microsoft's Excel. 

Alteryx management estimates the company's total addressable market to be $49 billion. You should take this estimate with a grain of salt as it depends on subjective assumptions, but with $460 million to $465 million of revenue expected this year, the long-term revenue growth potential for Alteryx remains significant no matter how you measure its market opportunity.

Team working on computer with data analytics and charts.

Image source: Getty Images.

Short-term challenges 

However, despite that attractive growing market, management announced a weak outlook for the rest of the year as enterprises have become more prudent with their spending among coronavirus-induced uncertainties.

Full-year revenue is expected to grow by only 10% to 11%, a strong deceleration compared to the company's impressive double-digit revenue growth over the previous years. 

AYX Revenue (Quarterly YoY Growth) Chart

AYX Revenue (Quarterly YoY Growth) data by YCharts

That slowing revenue growth seems worrying as sales and marketing expenses as a percentage of revenue increased to 60.2% from 58.7% during the prior-year quarter. Also, that indicates the company's products aren't essential in the context of shelter-in-place orders and economic uncertainties.

Management is trying to address these short-term challenges with ideas such as cheaper and shorter-term licenses to convince customers of the company's value proposition while they prioritize other expenses. But that indicates Alteryx could be facing pricing pressure if uncertainties persist.

Beyond the coronavirus pandemic

Beyond these short-term challenges, I estimate the long-term potential of Alteryx remains attractive thanks to several growth initiatives, in addition to the tailwind its growing market represents.

The company released extra modules and capabilities last quarter to expand its revenue with existing customers. For instance, its new Intelligence Suite solution, which is sold as an add-on to Designer, provides simplified advanced analytics modeling.

As a result, the company's dollar-based net expansion reached 126% during the second quarter, which means existing customers spent 26% more than last year.

In addition, Alteryx should soon unlock some extra growth potential. Currently, customers must install and maintain Alteryx software on their workstations or servers. That can become cumbersome, especially for large customers. But some of that friction will disappear. During the earnings call, CEO Dean Stoecker confirmed the future release -- without giving a time frame -- of a cloud-based version of Designer, which will allow customers to use the company's core product from their web browser, with no installation.

Still a risky bet

After the impressive pullback following the second-quarter results, Alteryx stock still trades at a high enterprise value-to-sales ratio of 17.6.

If you consider the predicted revenue growth of 10% to 11% in 2020, that valuation ratio seems elevated, especially when you take into account the high sales and marketing expenses needed to fuel that modest revenue growth.

In addition, despite a high gross margin of 90% during the last quarter, Alteryx generated increasing losses of $35.3 million compared to $3.2 million last year because of its high operating costs. 

That demanding valuation indicates the market still expects the company to thrive beyond the next couple of quarters thanks to its attractive market and long-term growth initiatives, which doesn't leave much margin of safety for investors. Thus, prudent investors should wait for a stronger pullback before investing in this tech stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.