Investing in fresh IPO stocks can be tough. nCino (NASDAQ:NCNO) is a perfect example. This is a high-growth cloud software company and has some powerful friends. It was built with salesforce.com's (NYSE:CRM) platform, and Salesforce remains an investor in and partner with nCino for the financial services industry. Nevertheless, shares are well below where they were when they made their publicly traded debut last summer.

To be clear, this software-as-a-service firm deserves to be on your radar as it helps banks and financial institutions around the globe get updated for the digital era. But I'm still not buying -- yet. Here are two reasons not to buy, along with one reason to buy anyway if you're looking at the long-term potential for this small software tech outfit.

Impressive growth may have been due to the pandemic

nCino recently put the wraps on its 2021 fiscal year (the 12 months ended Jan. 31, 2021), and results were impressive. Revenue was 48% higher than the year before, increasing to $204 million. The company's free cash flow also improved to $4.88 million compared with negative $14.8 million last year.  

However, included in this growth was nCino's acquisition of financial analysis and compliance outfit Visible Equity over the summer of 2019. More importantly, though, some of nCino's long-term growth may have been pulled into 2020 during the pandemic as banks and financial services firms scrambled to update their operations for a new digital era. nCino's operating system helps speed up banking functions and makes remote work more feasible -- things desperately needed as the industry's status quo gets disrupted by fintech start-ups.  

Person in a suit holds a tablet with a brain made of electrical connections hovering above it.

Image source: Getty Images.

But the outlook for the new year indicates some of these tech updates may have been accelerated in calendar year 2020 -- and nCino will have a tough lap time to clear. Fiscal 2022 guidance calls for revenue of $254 million at the midpoint. That implies growth of just 25%. While many companies would love to have such a double-digit growth trajectory, this is a sharp slowdown for nCino.  

Valuation is still high

Given this slowdown, it's important to reevaluate this high-flying stock's valuation. And at 25 times expected fiscal 2022 sales, nCino is still trading for a very high premium even after falling some 30% from all-time highs. Exercise caution before pouncing on this cloud computing stock.  

At this juncture, I think Salesforce is the better buy. It owns over one-tenth of nCino, so investors get some exposure to nCino simply by purchasing Salesforce. And Salesforce is also forecasting growth in excess of 20% in the next year but only trades for 6.5 times forward sales.  

But international expansion is just getting started

In spite of nCino running into slowdown problems for now, this stock is still worth keeping a close eye on. The company's software has plenty of potential customers it can acquire in the years ahead, especially among bigger banks. It's already picked up Bank of America as a client and is helping the financial behemoth tidy up its operations and save on expenses. Other legacy banking firms could follow suit.  

Plus, nCino is only just starting to scratch the surface on international expansion. Fourth-quarter international revenue made up just 14% of the total. During its last quarterly earnings call, CEO Pierre Naude said its first customer in continental Europe (a bank in the Netherlands that just signed on back in the second quarter) expanded its relationship with nCino. Another deal with a big customer in the Baltic countries was also struck in the fourth quarter.

And Naude said 50% of its new-customer pipeline is now outside of the U.S. It's a big world out there, and nCino's banking operating system has years of growth potential ahead of it.  

If you believe in the digital banking and fintech movement, nCino stock is certainly worth consideration. I'm not buying just yet, but this small company could be a big winner over the long term as it helps legacy financial services get up to speed with the times.

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.