The past six months have been a windfall for MongoDB’s shareholders. The company’s stock price has jumped 99.3%, hitting $325.56 per share. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Following the strength, is MDB a buy right now? Or is the market overestimating its value? Find out in our full research report, it’s free.
Why Does MDB Stock Spark Debate?
Named after "humongous database," reflecting its ability to handle massive data loads, MongoDB (NASDAQ: MDB) provides a flexible document-based database platform that helps developers build, deploy, and maintain modern applications more efficiently.
Two Positive Attributes:
1. Skyrocketing Revenue Shows Strong Momentum
A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Luckily, MongoDB’s sales grew at an excellent 34.6% compounded annual growth rate over the last five years. Its growth surpassed the average software company and shows its offerings resonate with customers.
2. ARR Surges as Recurring Revenue Flows In
While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.
MongoDB’s ARR punched in at $1.72 billion in Q2, and over the last four quarters, its year-on-year growth averaged 25.2%. This performance was fantastic and shows that customers are willing to take multi-year bets on the company’s technology. Its growth also makes MongoDB a more predictable business, a tailwind for its valuation as investors typically prefer businesses with recurring revenue. 
One Reason to be Careful:
Operating Losses Sound the Alarms
While many software businesses point investors to their adjusted profits, which exclude stock-based compensation (SBC), we prefer GAAP operating margin because SBC is a legitimate expense used to attract and retain talent. This is one of the best measures of profitability because it shows how much money a company takes home after developing, marketing, and selling its products.
MongoDB’s expensive cost structure has contributed to an average operating margin of negative 7.5% over the last year. This happened because the company spent loads of money to capture market share. As seen in its fast revenue growth, the aggressive strategy has paid off so far, but it’s unclear what would happen if MongoDB reeled back its investments. Still, we’re optimistic the business can continue growing and reach profitability upon scale.
Final Judgment
MongoDB’s positive characteristics outweigh the negatives, and after the recent surge, the stock trades at 10.4× forward price-to-sales (or $325.56 per share). Is now the right time to buy? See for yourself in our full research report, it’s free.
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