MNDY stock is down 50% this year: is it a bargain now?

Monday.com stock has crashed this year, mirroring the performance of other software companies. It has dropped by 51% this year and 44% in the last six months. This retreat continued today, July 22, when it announced that it would lay off 20% of its employees as it embraced AI in its operations.

Monday.com stock has dropped amid SaaSPocalypse fears

Monday is a top software company used by thousands of people each day. It is used by over 60% of all companies in the Fortune 500, including popular names like Coca-Cola, Vistra, Universal Music Group, and Lionsgate.

It offers solutions in the CRM, IT support, and tools for developers using a Software-as-a-Service (SaaS) model. Most recently, it has launched a vibe coding solution that enables developers to build applications.

MNDY stock price has crashed this year amid concerns that software companies will be replaced with artificial intelligence (AI) tools. This explains why other popular SaaS companies like Adobe, Figma, ServiceNow, and Workday have plunged this year.

These fears grew this month after IBM published its financial results, which showed that customers were prioritizing hardware purchases over software. This trend continued today after reports emerged that it was laying off 20% of its workers.

Layoffs can be a sign that the management expects the company to deteriorate. In some cases, however, they can be a sign that the management has found a way to boost its profitability.

Monday’s business is doing well

On the positive side, the most recent results showed that the company’s business was doing well. Its revenue jumped by 24% to $351 million as its customers paying over $50k a year rose by 32%. Those paying $100k a year rose to 1,844 from 1,328 in the same period last year.

The management expects that its transition to a consumption-based pricing model will help its revenue continue to grow. It introduced the new seats-plus-credits pricing structure for new customers. Its goal is to transition all existing customers to this system in the future.

Monday’s profits also continued growing, with its operating income hitting $49 million in the quarter. Analysts expect that its double digit growth will continue. 

The average estimate is that its revenue rose by 18.9% in the second quarter to $355 million. They expect that its third quarter will rise by 17% to $370 million, while the annual figure will jump by 19% to $1.47 billion.

Monday, like other software companies, has also become highly undervalued, with its forward price-to-earnings ratio being 16. The S&P 500 Index has a multiple of 20. As such, there is a likelihood that the stock will bounce back as investors buy the dip.

MNDY stock price technical analysis

Monday stock chart | Source: TradingView

The weekly chart shows that the MNDY stock price has retreated sharply this year. After peaking at $342 in February last year, it plunged to a low of $58 in April. 

A closer look shows that the stock has always gapped lower after earnings. It has now landed to a crucial support level, which coincides with the lowest level in 2022. 

On the positive side, the stock has formed an island reversal pattern, a sign that it may bounce back in the near term. If this happens, the next key level to watch will be at $100. A drop below the year-to-date low of $58 will point to more downside.