From Seeking Alpha. One of their writers is a recent convert. This article is a good overview of AVPT for anyone not familiar with the company. Added this morning @ $5.80.
AvePoint: Stock With High Growth Potential For 2022 And Beyond
Summary
* AvePoint provides key software and services for large clients such as Microsoft and Salesforce.
* AvePoint is expected to grow revenue by 30% in 2022.
* The CEO indicated that acquisitions could be in the company's future, which could accelerate growth.
Many companies have extended valuations after the market runup over the past few years. So, I have been looking for stocks that are valued reasonably with a high potential for strong future upside. The recent one that I discovered is AvePoint (NASDAQ:AVPT).
AvePoint provides cloud solutions in a software as a service [SaaS] format for clients of Microsoft (NASDAQ:MSFT) 365 software, Salesforce (NYSE:CRM), SharePoint, and Google (NASDAQ:GOOG) (NASDAQ:GOOGL). The company has a suite of SaaS solutions to manage, migrate, and protect data. AvePoint benefits from getting referrals from Microsoft and other companies for the software and services that AVPT provides. It is important to note that AvePoint is the largest solutions provider for Microsoft 365.
One example of what AvePoint provides are important cybersecurity solutions for companies that provide team sharing software such as Microsoft Teams. When companies have many people accessing company systems from remote locations, it is important to have proper security protections in place when sensitive data exists in the cloud.
Another example includes migrating a company's data to the cloud and managing it. Many companies have a lot of existing data with the need to move it into the cloud. AvePoint provides key solutions to effectively migrate and manage this data in the cloud.
AvePoint's Future Catalysts
AvePoint has a strong potential for growth since the total addressable market for the company's solutions is estimated to be $40 billion to $50 billion. This is a large market, which AvePoint can capitalize on for sustainable ongoing revenue growth. The company had about $184 million in revenue over the past 12 months. AvePoint's revenue is expected to grow by about 30% in 2022 according to consensus estimates.
Microsoft 365 has about 280 million active users. This is expected to grow to 500 million over the next several years. This will provide AvePoint with a growing amount of new potential customers going forward.
AvePoint has first mover advantage since they are the largest solutions provider for Microsoft 365 clients. The company's established dominance in this space can help them add new clients.
The company is focused on multiple strategies for sustainable future growth. One strategy is to expand into multi-cloud. TJ Jiang, the CEO of AvePoint pointed out that about 80% of enterprise customers use other cloud services in addition to Microsoft. So, AvePoint has the opportunity to help clients with other cloud services such as AWS (Amazon Web Services), Google Cloud, Zoom (NASDAQ:ZM), Dropbox (NASDAQ:DBX), and others. Helping companies to become more productive and secure with using multiple cloud services can be a strong growth opportunity for AvePoint.
Another strategy is to grow AvePoint's customer retention rate from 111% to 120%. Having a higher retention rate than 100% shows that AvePoint increases revenue among existing customers while effectively maintaining the customer base.
The growth into providing vertical solutions is another strategy that the company plans on implementing. This involves leveraging data management and security governance within a SaaS framework. This could also involve adding other related solutions that customers may need for more efficiency and lower costs.
AvePoint also has a strategy to grow through international expansion. The company already has a presence in North America, Asia, Australia, and Europe. There are opportunities to grow in these existing regions and to expand into other emerging markets over time.
The CEO stated that AvePoint has plans to seek acquisitions in 2022. AvePoint is targeting companies that are valued between $650 million and $12 billion. Acquisitions are a strategy stemming from the company's roots of merging with a blank-check company from its SPAC formation in July 2021.
Valuation
Since AvePoint did not achieve consistent profitability yet, I felt that the Price to Sales ratio would be the best metric to value the company. AvePoint is growing revenue at a strong pace. Over the past 12 twelve months, the company increased revenue to $184 million over 2020's revenue of $151.5 million, a gain of 21.6%.
AvePoint is trading with a price/sales ratio of 1.4. That is significantly below the price/sales ratio of 11.3 for the Software Infrastructure industry. One of the company's main competitors, Datto Holding (NYSE:MSP) is also trading higher with a price/sales ratio of 6.8. Just for additional reference, the S&P 500 (NYSEARCA:SPY) is trading higher with a price/sales ratio of 3.26.
I see the company as attractively valued. Of course, the stock did take a hit in 2021, bringing the valuation down to this level. The decline was largely due to the sell-off in SPACs in 2021 after an upward frenzy in late 2020. The sell-off brings AvePoint to a fair valuation considering the company's long-term growth potential.
The price action in the above daily chart could be viewed as a bear flag as the stock consolidated in December after the sharp drop in November. The stock could continue lower if SPACs continue to sell off, if the company reports negative news, or if the broader market sells-off.
However, the good news is that the company is expected to grow revenue in 2022. Plus, the company has a chance to turn a profit in 2022 with current consensus EPS estimates at $0.05 for the year. Plus, the sell-off in SPACs could be overdone. AvePoint's has a good chance of performing well over the long-term as the company continues to grow revenue at a strong pace and gets closer to profitability.
The Risks
AvePoint highly depends on its partnership with Microsoft and other companies. Disruptions in these relationships could result in the loss of business. Microsoft and the other companies could acquire other competitors as partners, which could take market share away from AvePoint.
As the company seeks future acquisitions, it may have a need for additional capital raises. This could dilute existing shares, leading to a short-term stock price decline.
The stock is highly volatile and can experience sharp declines. Companies classified as SPACs performed poorly in 2021 after a sharp runup in late 2020. The stock could continue to underperform if SPACs continue to decline in price.
AvePoint's Long-Term Outlook
Although AvePoint's stock declined significantly during 2021, the valuation is now at a reasonable level for a long-term position in my opinion. AvePoint has a likelihood of achieving strong double-digit revenue gains in 2022 and potentially for multiple years after that. This is due to the large addressable market that AVPT is targeting.
Watch for the company to possibly become profitable in 2022 as it continues to grow revenue and gains economies of scale. AvePoint is in a good position for future growth as it has about $261 million in cash on the balance sheet with hardly any debt. Future value-added acquisitions are a likely possibility, which are a part of the company's growth strategy.
Analysts have a one-year price target of $14.50 for the stock, which represents 131% gain over the current price. This looks reasonable given AvePoint's strong expected revenue growth of 30%. It also looks reasonable because the price target would bring the stock more in line with the industry's average price/sales ratio.
