Short Opportunity? Morgan Stanley Discusses One Of SaaS's 'Most Expensive' Stocks
Shares of Cvent Inc, a cloud-based enterprise event management platform, spiked to new 52-week highs of $33.80 on Wednesday, prompting Stan Zlotsky of Morgan Stanley to downgrade the stock to Underweight from Equal-Weight with a price target lowered to $29 from a previous $30.
Analyst's Take
According to Zlotsky, Cvent's stock ranks as "one of the most expensive" names in SaaS given its 0.23x EV/CY16 multiple on a growth adjusted sales bases versus its peers, whose stocks are trading at a 0.17x multiple. The analyst added that while he recognizes the "fundamental" story, the risk to reward profile is "unfavorable" at current levels.
Related Link: Cvent Announces Second Quarter 2015 Financial Results
Zlotsky continued that Cvent faces a total addressable market of $4 billion to $6 billion in the meetings management side (Platform) with another $4 billion for marketing (Hospitality Cloud). To address the market, the company is expected to launch Conference and Express in the back half of 2016, which will fuel growth in 2016. In addition, Hospitality Cloud should benefit from its acquisition of Decision Street given its lead scoring and EMI's white label integration.
Looking Ahead
If the company is successful, it could see a "long runway" of growth (25 percent annually) fueled by the "robust" product pipeline and investments. However, the analyst pointed out that the stock has outperformed the S&P 500 by 23 percent year-to-date and is trading "ahead of fundamentals." Specifically, the stock is trading at 5.6x EV/CY16 sales, and the analyst's $29 base price target implies a 4.8x multiple – already marking a premium multiple versus SaaS peers at 4.5x.
Finally, the analyst suggested that if Cvent demonstrates a "strong" growth rate above his base case assumption of 25 percent, the stock could move toward his bull case price target of $45. However, if customer interest fails to materialize, "disappointing" results could drive the stock toward a $9 bear case, which represents a 1.2x sales multiple – in-line with slow growth peers.
Bottom line, Zlotsky suggested that investors can find "more attractive near-term opportunities in other names."
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