On Tuesday, Canaccord Genuity adjusted its price target for Docebo Inc. (NASDAQ:DCBO) shares, a cloud-based learning platform, reducing it to $55.00 from the previous $65.00. The firm maintained a Buy rating on the stock despite the change.
This adjustment follows Docebo's disclosure of first-quarter results that exceeded expectations, coupled with a robust enterprise customer base but presented a weaker-than-anticipated revenue growth forecast for fiscal year 2024.
Docebo's Annual Recurring Revenue (ARR) grew by 22% year-over-year, and the company demonstrated Free Cash Flow (FCF) margins of 18%.
Nevertheless, management has set a more conservative revenue growth target of 17.0% to 18.5% for the full year, which is below the 23% growth anticipated by the consensus. Additionally, the expected EBITDA margins of 14.5% to 15.5% for the year also fall short of the consensus estimate of 15%.
Despite these projections not meeting the "rule of 40" benchmark that combines growth and profit margins, as seen in the first quarter, the company anticipates margin improvements in 2024 and 2025.
The improvements are expected to be driven primarily by general and administrative (G&A) leverage, aiming to push EBITDA margins toward approximately 20% and FCF margins 1-2% higher.
Canaccord Genuity noted the market's reaction to the forecast as seemingly excessive given the stock's approximate 20% drop. The firm believes that Docebo's current valuation at 4 times its calendar year 2025 estimated enterprise value to sales (EV/Sales) is appealing, considering the expected revenue growth and profit margins. The firm also highlighted the positive shift towards larger enterprise and government clients.
In light of the updated guidance and Docebo's efforts to expand its margins, Canaccord Genuity suggests that the company is in a good position to surpass expectations throughout fiscal year 2024. The firm's revised price target reflects a lower 6 times EV/2025 Sales multiple, down from the previous 7.5 times, and takes into account reduced estimates.
Despite the reduction, the firm's stance on Docebo's stock remains optimistic, citing it as undervalued relative to the broader software market.
InvestingPro Insights
As Docebo Inc. navigates through its financial forecasts and growth strategies, real-time data from InvestingPro offers a deeper look into the company's performance and market position. With a market capitalization of approximately $1.1 billion and a high P/E ratio of 180.3, the company reflects a significant earnings multiple, which aligns with Canaccord Genuity's valuation considerations. Notably, Docebo's gross profit margins remain impressive at nearly 81%, underscoring the firm's efficient cost management and potential for margin expansion.
InvestingPro Tips highlight that Docebo holds more cash than debt on its balance sheet, which is a strong indicator of financial stability. Additionally, the company's net income is expected to grow this year, offering a promising outlook for investors. With 19 additional tips available on InvestingPro, investors can gain a comprehensive understanding of Docebo's financial health and future prospects. For those interested in further insights, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Despite recent price volatility, with a 22.77% drop over the last week, Docebo's focus on larger enterprise and government clients could pave the way for a robust recovery. The InvestingPro Fair Value estimate of $38.76 suggests a potential undervaluation, which may interest value-seeking investors. As Docebo aims for margin improvements in the coming years, these financial metrics and tips from InvestingPro could prove invaluable for those monitoring the company's progress.
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