monday.com stock is cheap ahead of earnings: rule of 40

monday.com (MNDY) stock price will be in the spotlight on Monday when the company publishes its financial results. It has already had an average year, rising by 12% and hovering near its highest level since January 2022.

monday.com is growing

monday.com is a fast-growing company that offers software solutions to companies from around the world. It provides a Work Operating System that lets people collaborate and organize projects easily. 

Over the years, the company has introduced more services to boost its ecosystem. It brought in monday dev, monday workflows, monday CRM, workcanvas, and most recently, work AI. 

These solutions have helped the company grow its revenue substantially in the past few years. It made over $78.1 million in revenues in 2019, a figure that rose to over $729 million in the last financial year. Total paid customers have grown to over 225,000.

monday.com operates in a highly competitive industry, where its biggest competitors are firms like Salesforce, Atlassian, Zoho, ClickUp, Wrike,Notion, Airtable,  and Asana. 

This competition could limit its future growth now that many companies are already using one of these companies. 

And in most cases, companies rarely change their communication and project managememt software since doing that is often time consuming. monday.com has a net retention rate of over 110%.

MNDY financial results ahead

The company’s financial results on Monday will show whether its business is gaining momentum. 

In the last quarter, its revenue rose to over $868 million, a big increase from the $649 million it made in the same quarter in 2023. It made $236 million in Q1 of 2021, meaning that its business is thriving. This trend happened as the number of customers paying over $50k a year. 

Analysts expect that monday.com’s business continued doing well in the last quarter. Revenue is expected to come in at $228 million, a 30% increase from the same period in 2023. 

Also, its earnings per share (EPS) is expected to move from 41 cents to 56 cents. monday.com will likely beat these numbers as it has done in the past few quarters.

Its revenue guidance is also expected to be over $947 million, a 30% increase from the $729 million it made a year earlier. If this trend continues, the company’s revenue will rise to over $1.2 billion in 2026. 

Traders will focus on other things in this report. The most important one will be its margins, which should continue going up. In the last quarter, the company has a gross margin of 90% and a net income margin of 2.5%, meaning that it needs to expand them.

MNDY’s valuation

There are signs that monday.com is a highly undervalued company based on its growth trajectory and potential margins in the future. 

It has a market cap of over $10 billion and is expected to make over $1.2 billion in 2026. Since it is a relatively new company, we can use its bigger peers to estimate its future profits once it moves from this growth phase. 

The best company to compare it with is Salesforce, which is owns Slack and other brands. It has a gross profit of 76% and a net income margin of 15.30%. Microsoft, another big name in SaaS, has a gross and net margin of 69% and 35%, respectively. 

monday.com has higher gross margins than these companies. As such, we can assume that its business will have a net profit margin of at least 40% in the future. Based on the estimated annual revenue of $1.2 billion in 2026, it means that monday.com can make over $480 million in annual profits. 

Therefore, since the company sits on over $1.2 billion in cash, we can assume that it is an undervalued firm. 

For SAAS companies, one of the best approaches to value SAAS companies is known as the Rule of 40. This is a situation where one adds the company’s YoY revenue growth and its profit margin. 

Using the last financial results, we see that monday.com’s revenue growth stood at 34% and a operating  margin of 16%. This addition gives us a rule of 40 figure of 50%, meaning that it is reasonably valued.

monday.com stock price analysis

The daily chart shows that the MNDY share price is not doing well. It has dropped sharply recently after forming a double-top pattern at $250. In most cases., this is one of the most bearish signs in the market. It has also moved below the neckline of this pattern. 

The stock has also moved below the 50-day moving average, meaning that the stock has more downside. On the positive side, the stock has formed an inverse head and shoulders pattern, which is a bullish sign. 

Therefore, the stock will likely be a bit volatile after earnings. The key support and resistance levels to watch will be at $180 and $230.