Growth stocks can be a wild ride. The long-term positive effect is usually accompanied by stomach-churning volatility. monday.com (NASDAQ: MNDY) currently has ups and downs. As of this writing, shares are down about 28% from their highs.
The company’s software-as-a-service business model is disrupting the way employees collaborate in the workplace, and additional enablers such as product expansion and artificial intelligence (AI) could drive long-term growth that can deliver outsized returns. The company is performing at a high level, making this recent decline a buying opportunity.
Here’s what you need to know.
Monday.com’s main business is cloud-based collaboration software. It’s a low-code, highly customizable platform where people can organize tasks, share information, and integrate automation and apps to improve workplace efficiency. Today, more than 225,000 customers use the product in 200 countries.
The company’s growth model is brilliant. It’s free for the first two people in an organization, making it easy for any business to try. If they like it, the software spreads through the company and moves up the price ladder as more people use it. This sales process has delivered a solid net revenue retention of 111%, highlighting how customers are spending more over time.
Monday.com’s long-term advantage depends on how it builds on its core project and task management software to penetrate adjacent markets. Since 2022, the company has launched several new products, including a Customer Relationship Manager (CRM) for sales, Dev for product and development teams, and Service for IT and support. Monday.com has integrated several AI tools and features to improve its products, leading to better user experiences and more loyal customers.
Today, Monday.com generates $906 million in annual revenue and grew more than 32% year over year in the third quarter. How high Monday.com’s ceiling is remains to be seen, but the product roadmap indicates that the company plans to become a jack-of-all-trades for enterprise software. Some of the world’s largest technology companies, such as Adobe And Salesforcetrading in business software.
If Monday.com consistently converts businesses into paying users and moves them up the pricing ladder, it will have a long growth trajectory.
Competition in the business software space is fierce, with so many players that it can be difficult to find the best of the bunch. Investors can use the rule of 40 to identify which companies are performing at a high level. The Rule of 40 is a simple metric that measures a company’s ability to grow without sacrificing profitability. Add a company’s sales growth to its free cash flow margin to calculate the Rule of 40 score.
