As the Federal Open Market Committee (FOMC) prepares to release its latest policy statement later today, only one thing seems certain - we won't be getting a rate cut to start the month of May. Beyond that, the global economy seems to offer up just about nothing but uncertainties, including geopolitical flashpoints in the Middle East and Eastern Europe, ongoing trade tensions between the U.S. and China, and a mixed bag of data that points to persistently sticky inflation.
Although capital markets have been quite resilient in the face of these onslaughts so far, it's fair to say the Fed's job looks more complicated now than it did at the end of 2023, when consensus forecasts were calling for three rate cuts this year. While investors await fresh clarity from Chair Jerome Powell, the FOMC will no doubt be looking to the economic data for its clues - and suddenly, chatter is growing around the topic of stagflation.
In a recent note, UBS Global Wealth Management’s chief investment officer, Mark Haefele, said that stagflation - slower growth with higher inflation - might be the one scenario that “nobody's really prepared for." While he said it's difficult to hedge, Haefele is endorsing quality bonds and stocks as one way for investors to protect against this possibility. In terms of quality stocks, he likes “companies with very strong recurrent balance sheets, recurring revenues, pricing power" - and says there are plenty of tech names beyond the mega-caps that fit the bill here.
To that end, here are three top-rated, mid-cap tech stocks that could be a surprising source of quality for investors in this market.
1. Smartsheet
Based out of Bellevue, Wash., Smartsheet (SMAR) is an enterprise work management platform that helps businesses of all sizes manage projects, automate workflows, and collaborate effectively. Because it operates as a cloud-based software-as-a-service (SaaS) platform, its core product, the Smartsheet platform, is accessed through a web browser or mobile app and users don't need to install any software on their devices. Its market cap currently stands at $5.27 billion.
Smartsheet stock is down 20.8% on a YTD basis.
Smartsheet reported strong numbers for the latest quarter, with both revenue and earnings surpassing estimates. Revenues for the quarter came in at $256.9 million, up 21% from the previous year, aided by a 23% YoY rise in subscription revenues to $244 million. EPS almost quadrupled from the prior year to $0.34, comfortably outpacing the consensus estimate of $0.19.
Notably, the company also crossed the annualized recurring revenue (ARR) milestone of $1 billion in the fourth quarter. Smartsheet closed the quarter with a cash balance of $628.8 million, much higher than its debt levels of $49.8 million.
The company is strategically moving beyond its small business base. They now boast nearly 2,000 customers exceeding $100,000 in ARR. This indicates a shift towards larger enterprises. Furthermore, existing customers are deepening their engagement, demonstrated by a net revenue retention rate that's 120% stronger than most SaaS companies.
While the intuitive, Excel-like interface remains a key differentiator - and attracts users who are comfortable with spreadsheets - Smartsheet's true strength lies in its expanding suite of premium features, developed in-house, and its add-ons. These solutions seamlessly integrate with the core platform, unlocking new functionalities and driving growth.
Additionally, Smartsheet's upcoming AI-powered features hold promise for further innovation and value creation. These developments position Smartsheet as a well-rounded platform with a bright future.
Analysts have a consensus rating of “Strong Buy” for SMAR stock, with a mean target price of $50.12 - which indicates an upside potential of about 32.5% from current levels. Out of 18 analysts covering the stock, 13 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating, 3 have a “Hold” rating, and 1 has a “Moderate Sell” rating.
2. Monday.com
Founded in 2012, Monday.com (MNDY) operates as a cloud-based SaaS workforce management platform. Users access the platform through a web browser or mobile app, eliminating the need for software installation. It currently commands a market cap of $9.3 billion.
MNDY stock is up 0.8% on a YTD basis, and 55% over the last 52 weeks.
Monday's Q4 results surpassed consensus estimates on both revenue and earnings. In the fourth quarter, the company's revenues were $202.6 million, which denoted yearly growth of 35%. Adjusted EPS rose by 47.7% from the previous year to $0.65, coming in way above expectations for $0.33.
Total customers grew by about 21% from the prior year to about 225,00. During the year, the company added 821 new customers with over $50,000 in ARR, with this cohort now representing 32% of ARR - up from 27% a year ago. Customers with over $100,000 in ARR rose to represent 20% of ARR, up from 17% the previous year, highlighting the fact that Monday.com's products are resonating well with enterprise customers.
The company exited the December quarter with a cash balance of $1.12 billion compared to $885.9 million in the prior year. Notably, the cash balance dwarfed its debt levels of $61.15 million.
Monday.com operates in the rapidly growing no-code/low-code application development space, the market for which is projected to reach $100 billion by 2030, from around $30 billion today. This is because it offers increased productivity through faster development time and also offers a leaner way to launch internal tools while requiring smaller developer headcounts.
Meanwhile, new products and features such as monday AI, monday workflows, and monday sales CRM are gaining traction among customers. In fact, demand for CRM products remains strong, as indicated by 21% CRM customer growth in FY23.
Overall, analysts have a rating of “Strong Buy” for MNDY stock with a mean target price of $248.67. This indicates an upside potential of roughly 31.3% from current levels. Out of 17 analysts covering the stock, 12 have a “Strong Buy” rating, 2 have a “Moderate Buy” rating, and 3 have a “Hold” rating.
3. Gitlab
Founded in 2014 and based out of San Francisco, GitLab (GTLB) offers a cloud-based DevOps platform that combines the version control system Git with continuous integration/continuous delivery (CI/CD) tools and other functionalities to help software development teams manage their entire software development lifecycle. Its market cap currently stands at $8.77 billion.
GitLab stock is down 16.7% on a YTD basis, and up 72% over the past 52 weeks.
In the latest quarter, GitLab reported a beat on both revenue and earnings. Revenues for the quarter were at $163.8 million, up 33% from the prior year. The company reported adjusted EPS of $0.15 which compared favorably to a loss of $0.03 per share reported in the prior year. The EPS also surpassed the consensus estimate of an EPS of $0.08.
The company's strong liquidity position is reflected in its cash and equivalents balance of $1.04 billion, higher than its debt of $410,000.
Operationally, the company's solid customer growth bodes well. Customers with $50K+ ARR, $100K+ ARR and $1M+ ARR all increased year over year, by 23%, 37%, and 52%, respectively. Some notable customers include UBS (UBS), Goldman Sachs (GS), Lockheed Martin (LMT), T-Mobile (TMUS), Nvidia (NVDA), Siemens and Airbus (EADSY).
Further, GitLab recently launched its AI initiative Duo, which integrates AI throughout the software development life cycle. Code Suggestions and Chat are its key features. While Code Suggestions helps users write code, Chat is a feature that helps programmers identify useful information in text, and then conversationally generates text and code.
Currently, GitLab has 30 million registered users, and 1 million active license holders. Duo is only available to the Premium and Ultimate tiers of GitLab users. It also recently began to offer Enterprise Agile Planning, which is designed as an alternative to Atlassian’s (TEAM) Jira.
Analysts rate the stock a “Strong Buy” with a mean target price of $71.14, which denotes an upside potential of about 35.6% from current levels. Out of 23 analysts covering the stock, 17 have a “Strong Buy” rating, 2 have a “Moderate Buy” rating and 4 have a “Hold” rating.
On the date of publication, Pathikrit Bose did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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