This year, investors' attention has been focused on the world's largest technology giants, and for good reason. They've been outperforming the broader stock market and their presence in new, emerging industries like artificial intelligence (AI) promises significant financial returns in the future.
But there is no shortage of opportunities at the smaller end of the market for investors willing to venture off the beaten path. According to The Wall Street Journal, just 11 analysts cover cloud-based data aggregation specialist Workiva (WK 0.59%). All 11 happen to be overwhelmingly bullish on its stock.
Workiva just released its financial results for the third quarter of 2023, and they exceeded management's forecasts. Considering Workiva stock still trades 43% below its best-ever level from the tech frenzy of 2021, now might be a great time to follow Wall Street's lead and buy-in for the long term.
NYSE: WK
Key Data Points
Workiva is expanding into a new, lucrative market
Workiva's financial and audit reporting platforms are in high demand, especially as companies rely more on remote workforces. Organizations use dozens of online applications to run their everyday operations, and that's creating visibility challenges for managers especially when employees are working from different parts of the world.
Workiva specializes in aggregating important data onto one simple, cloud-based dashboard, by plugging into the popular applications workers use each day to complete their jobs. That means managers no longer have to piece together information from different sources, which is a major time-saver when compiling reports for their executive teams, for example.
Plus, once data is pulled across to Workiva, the company offers hundreds of reporting templates not only for internal use, but also for important filings to regulators like the Securities and Exchange Commission.
But Workiva has used its expertise to develop a new product that tackles the growing need for environmental, social, and governance (ESG) reporting. Governments in major economies like the U.S., Europe, and the United Kingdom are implementing requirements for companies to report their impacts on the environment and communities in which they operate. They cover everything from an organization's carbon footprint to the diversity of its workforce.
These rules are only going to expand over time, and while they mainly impact larger organizations for now, it's likely that all businesses will eventually have to track their ESG impacts in some way. Workiva can help them install an ESG framework, collect the necessary data, and compile the required reports. According to consulting firm PwC, the market for ESG reporting software could be worth $17 billion by 2026, so it might be Workiva's largest opportunity yet.
Workiva delivered a strong Q3 revenue result
Workiva forecasted $156 million in revenue for the third quarter (at the high end of its range). The company beat that number by delivering $158.2 million, representing 19% growth compared to the same time last year.
Workiva continues to see rapid uptake for its software among larger organizations. In fact, its fastest-growing customer cohort is those with an annual contract value of at least $300,000.
Image source: Workiva.
Another contributor to Workiva's strong revenue result was its net revenue retention rate. It has ticked higher for four consecutive quarters, and it reached 112% in Q3, which means existing customers were spending 12% more money than they were a year ago.
Plus, thanks to careful expense management, Workiva managed to cut its operating loss in half to $15 million, compared to $30 million in the same quarter last year. However, after stripping out noncash expenses like stock-based compensation, the company actually delivered a non-GAAP (adjusted) operating profit of $5 million. It's an important metric to watch as Workiva tries to balance growth and profitability.
Wall Street is overwhelmingly bullish on Workiva stock
Workiva stock is flying under the radar on Wall Street. As mentioned earlier, just 11 analysts cover the stock publicly, which pales in comparison to the 45 covering a big tech giant like Apple, for example. However, the consensus among those 11 professionals is extremely bullish.
Eight of them gave Workiva stock the highest possible buy rating, with one analyst in the overweight (bullish) camp, and two recommend holding. Not a single analyst recommends selling. They have an average price target of $120.89, which implies a potential upside of 34% from where the stock trades today.
When you consider that Workiva forecasted $628 million in 2023 revenue in a $25 billion total addressable market across all of its segments, there is an enormous potential growth runway ahead for this company. Plus, with ESG reporting mandates becoming more common globally, the corporate sector will have no choice but to invest in software technologies like the one Workiva provides.
With Workiva stock trading 43% below its all-time high, now might be a great time for investors to buy in as the ESG opportunity ramps up in the coming years.
