Is This The Smartest Stock to Buy?

Smartsheet isn’t a company on the tip of most retail traders tongues but it might be soon. What started out as a spreadsheet with collaborative project management features has grown into a work management software worth $5.7 billion.

Better yet, it’s growing at a rapid rate and is sitting squarely in the middle of a market that is forecast to grow at 13.4% annually through 2026.

Unlike many tools that are designed simply for one sector or another, Smartsheet has broad application to many industries ranging from healthcare to technology, and from finance to manufacturing.

As work management systems have exploded post 2020-21 lockdowns, Smartsheet has been on a non-stop growth trajectory.

Key Points

• Smartsheet, now worth $5.7 billion, is growing quickly in a market expected to expand at 13.4% annually through 2026.
• Though not yet profitable, Smartsheet has shown consistent revenue growth, a 79% gross margin, and improving operating margins.
• With top clients like Cisco and Netflix, a high net dollar retention rate of 125%, and innovative features, Smartsheet demonstrates strong customer loyalty and growth potential.

What Makes Smartsheet Different?

Going back 12 quarters, Smartsheet has grown revenues in each and every one of them, but why? One facet of Smartsheet’s value proposition is the simplicity of its spreadsheet interface that permits advanced collaboration and automation features. For example, users can customize workflows and also integrate Smartsheet into other popular tools, like Slack, Microsoft Teams and Salesforce.

Over the past 3 years, what sets Smartsheet apart has translated to growing revenues but also mounting losses. Yet the earnings before interest and taxes line item has been improving, though still in the red. Quarterly net income has improved from losses of $37 million to just just $9 million in the most recent quarter.

In FY 2023, the company reported revenue of $765 million, representing year-over-year growth of 40%. This impressive growth is driven by a combination of new customer acquisitions and expanding usage within existing accounts. Gross margin stands at 79%, reflecting the efficient cost structure and the scalability of its SaaS model.

So, while Smartsheet is not yet profitable on a net income basis, the improving operating margin indicates a clear path towards profitability as it continues to scale.

Why Smartsheet Is Likely To Win

One strong signal of a company’s prowess is its ability to secure contracts with top brands. In the case of Smartsheet, notable clients such as Cisco, Netflix, and Procter & Gamble have signed on.

Smartsheet is also clearly making those new customers happy given that it has a high net dollar retention rate of 125% that signals strong customer loyalty and high potential for upselling and cross-selling opportunities.

The firm’s ability to retain and expand within its customer base is a testament to the value its platform delivers in terms of productivity and efficiency improvements.

Another positive indicator is seen in new innovations, such as Smartsheet Advance, which offers enhanced security, governance, and automation capabilities. And management isn’t shy about growing inorganically too as evident from the company’s acquisition of Brandfolder, a digital asset management platform.

To Buy or Not To Buy?

While the future is bright, and analysts see close to 20% upside, Smartsheet has its fair share of competitive threats to deal with, not least from Monday.com and Microsoft Project. The lack of profits is also a concern as it invests heavily in R&D and marketing to build a clientele.

Nonetheless, trading at 6.0x price-to-sales, it’s clear that the market remains confident in its prospects to deliver profits and ultimately keep growing for the foreseeable future.