Every day, Wall Street analysts upgrade some stocks, downgrade others, and "initiate coverage" on a few more. But do these analysts even know what they're talking about? Today, we're taking one high-profile Wall Street pick and putting it under the microscope...
Early investors in SVMK (NASDAQ: SVMK), parent of online survey specialist SurveyMonkey, have endured some big swings since it made its debut on the Nasdaq a bit less than one month ago. Priced at $12 to start, SVMK stock opened 56% higher than its IPO price (at $18.75) and ended the day up 44%.
Things haven't gone quite so well since then, however. Caught up in the downturn on the Nasdaq, SVMK has basically gone nowhere but down since its IPO, recently completing a round trip back to $12. But not to worry, says Wall Street. Despite all the negativity surrounding SurveyMonkey, this company still has a future.
And its return to $12 a share may just be giving investors a second bite at the apple.
SurveyMonkey's big post-IPO drop has some analysts looking down. Image source: Getty Images.
Initiating coverage on SurveyMonkey stock
Six separate analysts initiated coverage of the SurveyMonkey stock this morning, with four of them rating SVMK shares a buy (or equivalent), and only two saying hold -- with no sell ratings in sight. That's not entirely surprising. After all, the six bankers who initiated coverage of SurveyMonkey this morning all played leading roles in underwriting SVMK's IPO last month.
Here's what SurveyMonkey's four fans have to say about it today (with thanks to our friends at TheFly.com for the details):
- JPMorgan says that "SurveyMonkey is the number one survey platform of businesses using online survey software to acquire relevant feedback from the constituents that matter the most." The reason the stock is going down, opines JPMorgan, is that roughly one year ago, SurveyMonkey juiced its revenue growth rate with an increase in prices. With no similar price hike this year, sales growth rates are slowing -- but the analyst expects SurveyMonkey to pick up the pace again toward the back end of next year. JPMorgan rates SVMK stock overweight and gives it a $15 price target.
- JMP Securities agrees that SurveyMonkey is "well positioned to continue to grow" and has "multiple growth drivers" ahead of it. Indeed, JMP's outperform rating on SVMK stock carries with it an even more optimistic price target: $16 a share.
- Merrill Lynch argues that the "increasing cost of customer and employee attrition" is a problem for businesses, and SurveyMonkey has the solution: "survey based management." Like JMP, Merrill sees this as a $16 stock, and rates SVMK a buy.
- SunTrust believes SurveyMonkey's "large registered user base and infrastructure" will allow it to "sustainably grow revenues double digits," with new users attracted by the company's "freemium" product offerings and the recognizable SurveyMonkey brand. SunTrust likes how the company's "subscription-based business model" gives investors "visibility" into SVMK's cash flows, and like its peer analysts, believes the stock is worth $16 -- and a buy rating.
Of course, as I say, it's no surprise when bankers who underwrote SurveyMonkey's IPO and effectively hitched their reputations to the stock's success would sing its praises now that the "quiet period" is up and they're permitted to speak about the stock publicly.
What is curious is that with SurveyMonkey shares now selling for exactly the same price they went public at less than a month ago, two of the bankers who backed the IPO don't agree.
In that regard, I'm actually more intrigued to see UBS musing that, although SurveyMonkey has "ample runway" for growth both in the U.S. and internationally, the analyst seems worried that the "market" hasn't yet found an "equilibrium" around what price to set for this stock. Although UBS' $15 price target for SVMK stock is exactly equal to what JP Morgan established for its buy rating, UBS is only neutral on SVMK at this point.
Credit Suisse, too, says it's neutral on SVMK. Credit Suisse assigns SurveyMonkey a $13 price target and calls SurveyMonkey's online surveys "a valuable and critical asset" for business. Regardless, the analyst seems to think an estimated valuation 8% above current prices isn't high enough to warrant a buy rating.
How investors should react
Are UBS and Credit Suisse being too cautious? I'm not certain they are.
Consider: With $410 million in debt, only $43 million in cash (at last report) and a $1.6 billion market capitalization, even after its share price decline SurveyMonkey stock still carries an enterprise value of nearly $2 billion. Yet the company lost $32 million over the past 12 months and is expected to post another net loss this year. Indeed, according to analysts surveyed by S&P Global Market Intelligence, it's expected to keep on losing money for the next three years straight, and only turn the barest of profits in 2022.
Granted, SurveyMonkey is free-cash-flow positive, having generated a bit more than $34 million in cash profits over the past year. But even valued on free cash flow, the stock sells for more than 58 times FCF, which seems kind of steep for a company that -- according to JPMorgan, which remember, actually likes this stock -- is facing a "softening" revenue growth rate right now.
All things considered, I think that UBS and Credit Suisse have the right approach to this stock right now. For the time being, survey says, "Wait and see" -- not "Buy."
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