Shares of cloud software company Monday.com (MNDY -2.92%) were down as much as 27% today following the release of fourth-quarter 2021 earnings. The market was clearly not happy with the report, even though the work management outfit obliterated its own expectations for the final three months of 2021.
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A great start as a public company
Monday.com reported $95.5 million in revenue for Q4, a 91% increase from a year ago and way ahead of management's prediction a few months earlier for $88 million in sales. Adjusted operating losses were $9.9 million in Q4, also better than management's outlook for $23 million in adjusted operating losses.
2021 was the first year Monday.com was a publicly traded company following its hot initial public offering (IPO) last June. The company's suite of software helps users customize their own workflow management tools in an easy-to-use, no-code platform. From the recent financials, the software has been a hit. And during the IPO, the company attracted sizable investments from Salesforce.com (CRM 0.08%) and Zoom Video Communications (ZM -0.33%).
Nevertheless, it's been rough going lately for the stock in spite of strong growth. Blame the expectation for higher interest rates as the Federal Reserve prepares to try and beat down inflation.
Is Monday.com a buy?
While the present is looking dicey for high-growth but richly valued stocks due to the interest rate conundrum, there's still plenty to like about Monday.com. The company operates in the hot workflow and project management space, which is rapidly migrating to the cloud. With peers like Atlassian (TEAM -0.80%) and Asana (ASAN -0.69%), it expects its fast rate of expansion to continue into 2022. For the first quarter, management expects at least a 70% year-over-year increase in sales and at least a 53% increase for full-year 2022.
Monday.com also turned the corner on profitability in 2021, at least as measured by free cash flow (positive $2.6 million generated for the full-year period). That's good news and means this cloud software business is now self-funding its aggressive expansion efforts. And even if it decides to put the pedal to the metal, the company closed out 2021 with $887 million in cash and short-term investments. Suffice to say, this growth story looks far from over.
But because growth stocks are currently out of favor and being punished by the market, the question investors need to ponder now is whether they are comfortable enduring some gut-wrenching volatility for a while. Don't expect Monday.com to quickly rally to all-time highs anytime soon. However, the stock is now trading for just 13 times expected 2022 sales-to-enterprise value. That could be a fantastic long-term bargain (at least three to five years down the road) if this cloud computing company continues to deliver the kind of double-digit percentage-sales growth it's forecasting for the year ahead.
If you decide to buy now, keep in mind the fact that the stock price could absolutely fall further from current levels. Invest accordingly, perhaps making a very small purchase monthly or quarterly to take advantage of potential further dips in the coming year.
