MongoDB has been treading water for the past six months, recording a small return of 2% while holding steady at $335.56. The stock also fell short of the S&P 500’s 13.2% gain during that period.
Is now the time to buy MDB? Or does the price properly account for its business quality and fundamentals? Find out in our full research report, it’s free.
Why Does MongoDB Spark Debate?
Named after "humongous database," reflecting its ability to handle massive data loads, MongoDB (NASDAQ: MDB) provides a flexible document-based database platform that helps developers build, deploy, and maintain modern applications more efficiently.
Two Things to Like:
1. ARR Surges as Recurring Revenue Flows In
While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.
MongoDB’s ARR punched in at $1.94 billion in Q4, and over the last four quarters, its year-on-year growth averaged 26.4%. This performance was fantastic and shows that customers are willing to take multi-year bets on the company’s technology. Its growth also makes MongoDB a more predictable business, a tailwind for its valuation as investors typically prefer businesses with recurring revenue. 
2. Wall Street Expects Impressive Revenue Gains
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite, though some deceleration is natural as businesses become larger.
Over the next 12 months, sell-side analysts expect MongoDB’s revenue to rise by 17.8%. While this projection is below its 21% annualized growth rate for the past two years, it is noteworthy and indicates the market is baking in success for its products and services.
One Reason to be Careful:
Operating Margin Rising, Profits Up
While many software businesses point investors to their adjusted profits, which exclude stock-based compensation (SBC), we prefer GAAP operating margin because SBC is a legitimate expense used to attract and retain talent. This metric shows how much revenue remains after accounting for all core expenses – everything from the cost of goods sold to sales and R&D.
Over the last two years, MongoDB’s expanding sales gave it operating leverage as its margin rose by 5.2 percentage points. Although its operating margin for the trailing 12 months was negative 5.6%, we’re confident it can one day reach sustainable profitability.
Final Judgment
MongoDB’s merits more than compensate for its flaws. With its shares trailing the market in recent months, the stock trades at 9.2× forward price-to-sales (or $335.56 per share). Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
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