Shares of Elastic (ESTC -4.41%) were rallying over 10% higher today as of market close. This comes after a recent double-digit percentage plunge -- first on worries of the omicron variant, then a sell-off following what was actually a rock solid quarterly earnings update last week.
The cause of today's reversal? A Wall Street analyst thinks the punishment dealt to Elastic is unwarranted.
Specifically, J.P. Morgan analyst Mark Murphy upgraded Elastic from neutral to overweight with a $156 one-year price target. Closing today at just over $128 per share, that implies some 21% upside for the stock if the prediction is correct.
Short-term stock price outlooks aren't all that meaningful for long-term investors who own businesses for their potential years down the road, but I for one agree with the note that Elastic's downturn looks overdone. The company has consistently grown at a double-digit percentage pace for years (42% sales growth in the last quarter), and it has managed its transition to cloud-based software far better than industry peer Splunk. If you're looking for a top data analytics and cloud observability stock, Elastic deserves to be in the conversation right now.
For the current fiscal year, Elastic expects revenue to grow about 36% year over year to at least $826 million. Based on that outlook, shares currently trade for 14.5 times sales. Not a terrible premium for a high-growth software outfit with lots of expansion ahead of it -- and one that could someday be highly profitable, too.
Given Elastic's enduring growth trajectory, today's analyst upgrade and subsequent stock jump isn't so unusual. Keep this cloud-based software company on your radar.