By Friday afternoon, shares of Monday.com (MNDY +0.14%) had popped around 16% for the week, according to data from S&P Global Market Intelligence. On Monday morning, the workflow software solutions provider reported strong growth numbers yet again for the second quarter, along with solid profitability. As tons of software stocks get thrown out of investor portfolios to be replaced with artificial intelligence (AI) stocks, Monday.com has proved the doubters wrong yet again.
As of this writing at 2:54 p.m. ET Friday, shares of Monday.com were up 16.5% this week. Here's why.
More growth, more profits
In the quarter ending in June, Monday.com's revenue grew 34% year-over-year to $236.1 million. This was driven by spending growth from larger customers who are increasingly adapting the Monday.com workflow platform. Customers with more than $100,000 in annual spend with Monday.com grew 49% year-over-year to 1,009 in the quarter. Overall, the net dollar retention rate was 110%, which shows how much existing customers are increasing spend with the company. A 110% figure generally means that existing customers grew spending by 10% year-over-year.
Profitability looks strong. Free cash flow was $51 million in the quarter, or a free cash flow margin of 21.6%. Strong revenue growth along with positive free cash flow is a great combination. Investors are generally bullish on Monday.com's guidance as well. For the full year, management expects revenue growth of 31%-32% and free cash flow margins of 28%-29%. Not bad.
Seeing all these numbers, it is no surprise that Monday.com's stock is up this week. Shares are up close to 50% this year as investors realize how strong the financials of this company are. It is growing revenue at over 30% year-over-year with expanding free cash flow margins. Very few other companies can claim this combination.
NASDAQ: MNDY
Key Data Points
Is the stock a buy?
After rising this week and throughout 2024, Monday.com's shares are more expensive. It currently trades with a market cap of $13 billion, or a forward price-to-sales ratio (P/S) of 13.65. This is expensive compared to the S&P 500 average of 3.
However, this does not mean Monday.com will be a bad investment. If it can grow its workflow management platform and grow from under a billion dollars in revenue to billions of revenue a year, while also expanding its free cash flow margins, the stock may do well over the long haul even if it looks expensive today. Investors who are a believer in the Monday.com growth story can continue holding their shares at current levels.
