When hunting for growth stocks, searching among the firms trading close to their 52-week low can reveal some interesting opportunities. These companies are either having serious problems, or the market has undervalued their future prospects. The latter is where impressive returns can be achieved in the long run.
So, when looking at MongoDB (NASDAQ:MDB), whose shares are down almost 40% in a year, the question becomes, is this a buying opportunity? Let’s take a look.
Volatility in technology
Like many tech stocks in the US, MongoDB shares are no stranger to volatility. The NoSQL database provider has gotten a lot of attention in recent years, both from investors and businesses alike. Its technology serves as an alternative to traditional relational databases and is far better equipped for handling humongous datasets of unstructured data.
Like many tools in the tech space, MongoDB’s platform is not suitable for every task. But for machine learning and AI, it’s a perfect fit. And that certainly gives it some exciting long-term potential that’s already being used by 47,800 customers, including leading British firms like Vodafone, Barclays, and AstraZeneca, among others.
Prior to inflation entering the mix, the growth stock was on a rampage, surging more than 1,700% between 2017 and 2021. But like many tech stocks, the stock market correction proved brutal, with a 60% slide in 2022. Things appeared to be steadily getting back on track until its most recent earnings report sent shares tumbling once more. What happened?
Outlook and expectations
Despite what the recent tumble in market cap would suggest, MongoDB actually beat its adjusted earnings target. Analysts were expecting adjusted profits on a per-share basis to land at $0.40. Instead, they actually came in at $0.51 – 27.5% higher. Revenue also came in higher than expected at $450.6m versus $439.6m. So, why were investors so eager to sell?
The answer lies in management’s guidance. Despite achieving double-digit growth, the firm has reported signs of things slowing down more than initially anticipated. Subsequently, management cut its full-year guidance to an underwhelming level. And when trading at high multiples, that’s a welcome invitation to volatility.
It’s worth remembering that the US is currently suffering from a rebound of inflation, which now sits at 3.4% despite falling to 3.1% at the start of 2024. That’s ahead of the Federal Reserve’s target of 2%, which means interest rate cuts have been delayed. As such, more businesses, including MongoDB’s current and potential customers, are largely avoiding spending as much as possible, making growth more challenging.
However, that could quickly change once rate cuts start entering the picture. And with it, MongoDB’s growth could resume its historical surge, sending the share price back in the right direction.
There’s no denying that an investment in this enterprise carries significant risk. But given its long term potential, considering a small position could prove lucrative once economic conditions improve. At least, that’s what I think.
