On Thursday, Oppenheimer analyst upgraded Freshworks Inc (NASDAQ:FRSH) stock from Perform to Outperform, setting a new price target of $22.00. The firm sees Freshworks as a company poised for a turnaround and a beneficiary of an improving small and medium-sized business (SMB) market.
Trading at $17.26, InvestingPro analysis suggests the stock is currently undervalued, with impressive gross profit margins of 83.8% and 16 analysts revising earnings upward for the upcoming period. The analyst cited an attractive valuation and considered the current moment an opportunistic time for investors willing to take on the associated risks if the company can enhance its business operations.
The upgrade comes after Freshworks' stock price has seen a decline of 15% since May 2, 2024, when it was downgraded. Despite recent challenges, the company maintains strong revenue growth of 20.45% and holds more cash than debt on its balance sheet.
The stock's performance has been influenced by a broader change in investor sentiment, moving away from expectations of a high teens growth rate over the coming years. The market's acknowledgment of challenges faced by the SMB sector, including a hiring and demand slump that could not be offset by moving upmarket or strong growth in the IT market, has been a key factor.
The analyst expressed that the ongoing concerns about AI disruption and low investor sentiment may make the upgrade seem premature. However, he believes that Freshworks is on the cusp of an improving business narrative and stands to gain from a more favorable SMB market in 2025.
The previous year's challenges, tied to a demand slowdown in the SMB market and potential structural changes due to AI in the customer experience (CX) business, have been significant hurdles for Freshworks.
Despite these challenges, the analyst is optimistic about the company's future, anticipating that macroeconomic conditions will shift from being a headwind to a tailwind for Freshworks' business as the year progresses. The current valuation levels are seen as attractive, presenting an opportunity for investors.
The analyst's comments highlight an expectation of a positive change in the SMB market, which could benefit Freshworks later in the year. This potential market improvement, along with the company's efforts to turn around its business, form the basis for the upgraded rating and the new price target set by Oppenheimer.
With a strong current ratio of 3.26 and liquid assets exceeding short-term obligations, InvestingPro data reveals the company's solid financial foundation. Discover more insights and 6 additional ProTips for Freshworks in the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.
In other recent news, Freshworks Inc. reported its financial performance for the third quarter of 2024 and provided an outlook for the fourth quarter and the full year. Furthermore, the company offered a preliminary outlook for 2025. Freshworks also highlighted the potential benefits and costs associated with anticipated workplace realignment efforts.
The company acknowledged macroeconomic uncertainties that could potentially impact its industry and operations, but expressed confidence in its ongoing workplace realignment, anticipating that the initiative might enhance future performance.
In another development, Freshworks appointed Srinivasan Raghavan as its new Chief Product Officer. Raghavan, known as Srini, brings over two decades of leadership experience within the enterprise SaaS sector. He will be responsible for leading Freshworks' product strategy and vision, particularly focusing on the company's AI, customer experience, and employee experience solutions.
Needham reiterated its Buy rating on Freshworks, revealing positive trends in their operations, particularly with Freshservice and Freddy. Despite competition from NOW, Freshworks remains competitive, especially in terms of pricing. The firm's analyst expressed confidence in Freshworks' ability to achieve mid-teens growth for the fiscal year 2025, driven by the strength of Freshservice.
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