What happened

Shares of enterprise search, cloud observability, and security outfit Elastic (NYSE:ESTC) fell 15% today. The business reported a fantastic second quarter for its 2022 fiscal year (the three months ended Oct. 31), but such is life for investors in high-growth technology names. The bar was set high for Elastic, and the earnings beat-and-raise was punished anyway.  

Elastic has lost 23% of its value in the last week, dragged down with the rest of the market on omicron variant fears. Shares now trade for 13 times current full-year expected sales after the sharp decline in recent days.

Someone sitting in front of a computer displaying code.

Image source: Getty Images.

So what

As for the company's fiscal 2022 second-quarter results, revenue was up an impressive 42% year over year to $206 million, obliterating management's previous guidance and Wall Street's expectations. Adjusted loss per share was also better than anticipated, coming in at only $0.09 per share versus guidance for as much as a $0.19 loss.

Elastic is spending heavily on development and marketing, but its spending is still paying off. Full fiscal-year 2022 revenue guidance was raised to a range of $826 million to $832 million, representing a 36% increase over last year.

Now what

Given continued losses at Elastic, not all investors will be comfortable owning shares of this software business. Nevertheless, though it is intentionally using up cash to maximize its expansion right now, the company is well funded with $876 million in cash and equivalents, offset by debt of only $566 million.  

2021 has been a rough year for growth stocks like Elastic. But between multiple sell-offs paired with enduring revenue growth, shares are starting to look pretty attractive at these levels. Especially considering the company anticipates it can continue to expand its relationship with existing customers and pick up new ones looking to manage their cloud computing and IT operations.

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