A relatively overlooked company called SEMrush Holdings (SEMR 0.35%) began trading publicly in late March 2021 and had the unfortunate problem of bad timing. Not long after the IPO, the broader market turned away from tech growth stocks and SEMrush's share price, which had risen as much as 250% going into September 2021, began a steep decline along with many other tech stocks. SEMrush stock now trades below its $14 IPO price.

Even though the stock is down, this online marketing tools specialist has put out strong financial results and executed well. SEMrush has beaten all analyst estimates for earnings in the four quarters it has reported as a public company, all while improving its top line substantially.

This software-as-a-service (SaaS) stock got sucked into the growth stock sell-off in 2021, creating a huge disparity between the stock's performance and the business' performance. That makes SEMrush Holdings a potentially great buying opportunity right now. 

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SEMrush rules the industry

SEMrush helps marketers effectively reach their target audiences and overcome the information overload consumers face today. Consumers spend hours online every single day and see incredible amounts of advertising. Because of this, people have gotten very good at blocking out information, which makes it hard for marketers to run effective campaigns.

This is where SEMrush comes in. It aggregates trillions of data points from over 200 million online domains to figure out how companies can most effectively reach their target audiences.

The company is the leader in this service. By aggregating so much data, it can provide marketing teams with over 50 tools for different strategies. While its competitors focus on providing tools for just a few forms of marketing, SEMrush creates an all-in-one solution for nearly every advertising tactic a company might want to employ.

Because of this unique service, SEMrush has come to dominate this industry. The company has 82,000 paying customers, along with over 537,000 free users that could become paying users. These customers range from small businesses to large companies like PayPal Holdings and Booking.com.

The benefits of leadership

Because of its leading position, the company has seen impressive top-line expansion. Revenue jumped more than 50% year over year in 2021 to $188 million, and this is expected to continue. SEMrush's guidance for 2022 revenue calls for growth of 30%.

While SEMrush might be the top dog, there is still plenty of room to get bigger. Management sees a current market opportunity of $16 billion (expected to reach $20 billion in the future), so its annual revenue of $188 million is peanuts compared to its full potential, still largely untapped. 

Another thing to love about SEMrush is its cash generation. The company had $20 million in free cash flow last year, and it was roughly break-even. This ability to break even is especially surprising given the company's market capitalization of just $1.5 billion. Smaller companies are typically focused on growth, rather than profitability and cash flows. SEMrush, however, is managing to strike a balance between the two. This Suggests it has the resources to heavily reinvest into furthering its leadership position.

A risk to be aware of

SEMrush stock is not without risk. Along with the intense competition it faces from niche-focused players, the company faces indirect competitive pressure from search engines like Alphabet's (GOOG 1.25%) (GOOGL 1.20%) Google. To optimize listings for their users, search engines can alter their algorithms from time to time. While small alterations might not have a major impact, a big algorithm change from Google could decrease the effectiveness or eliminate the need for specific tools that SEMrush offers.

That being said, such an algorithm change would likely impact virtually every competitor in the market, not just SEMrush. The big concern would be if SEMrush failed to bounce back from an alteration like this while its rivals did. That could put its dominance in jeopardy, so investors should monitor this.

Is it a buy?

While SEMrush relies on search engines to not drastically change their algorithms, the diversity of its marketing tools is an advantage over its peers. If a competitor only offers tools for search engine optimization and the search algorithms change, that competitor will likely be impacted more than SEMrush, which has dozens of other marketing tools for social media and other outlets to fall back on and continue providing effective services to its clients.

SEMrush shares currently trade at just 7.5 times sales. Considering the large market ahead of it, its cash generation, strong expansion, and the competitive advantages it has today, I think shares could be undervalued. If you're looking to invest in a new company right now, this one should be near the top of your watch list.