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In the booming artificial intelligence (AI) era, data is king. AI and data are revolutionizing analytics and transforming industries together. In today's digital world, data is the lifeblood of businesses, and its creation is skyrocketing. By 2025, a staggering 181 zettabytes of data are projected to be generated.
Elastic N.V. (ESTC) is at the forefront of this revolution, leveraging AI to convert vast data volumes into actionable insights. Empowering thousands of businesses with advanced search, observability, and robust security solutions, Elastic stands to benefit considerably, as Wedbush analyst Daniel Ives estimates that AI and related spending could comprise 8% to 10% of IT budgets in 2024 - up sharply from 1% in 2023, and a potential game-changer for companies like Elastic.
Moreover, last week, UBS Group (UBS) initiated coverage on Elastic stock with a “Buy” rating, arguing that the market hasn’t fully grasped the company's AI potential. With shares of Elastic still arguably underappreciated, should investors scoop up the growth stock now? Let's have a closer look.
About Elastic Stock
Incorporated in 2012, Amsterdam-based Elastic N.V. (ESTC) is a data analytics company offering Elastic Stack, a suite of software for data ingestion, search, analysis, and visualization. Key products include Elasticsearch, Kibana, Elastic Agent, Beats, and Logstash, addressing use cases from search applications to cloud security, all designed for public, private, and multi-cloud environments.
Valued at $10.6 billion by market cap, shares of Elastic have rallied 44.9% over the past 52 weeks, outperforming the broader S&P 500 Index's ($SPX) 25.8% returns over the same time frame.
In terms of valuation, Elastic stock trades at 8.80 times sales, lower than its own five-year average of 13.01x.
Elastic N.V.’s Q3 Earnings Beats Wall Street Projections
The software developer reported fiscal Q3 earnings results on Feb. 29, posting a revenue of $328 million, up 19% year over year, which beat projections by 9%. Its cloud revenue surged 29% annually to $143 million. Its non-GAAP EPS, which rose 111.8% annually to $0.36, beat analysts' projections by 13.5%. As of Jan. 31, its cash, cash equivalents, and marketable securities were $1.015 billion.
In Q3, Elastic made waves with game-changing innovations: scalar quantization for faster, cost-effective vector search; real-time alerts via natural language AI interactions; and Azure-integrated cloud security management. It launched the Elastic AI Assistant for observability, empowering site reliability engineers with tailored operational insights, and introduced service level objective monitoring for performance tracking.
Further, the company also deepened Elasticsearch's integration with Hugging Face for seamless machine learning model embedding, driving significant customer adoption, including with AI-driven platforms like Consensus and developer hub Stack Overflow.
Elastic CEO Ash Kulkarni said, “Customer interest in Generative AI, platform consolidation, and stability in cloud consumption patterns continued to drive momentum in our business in Q3. This reinforces our confidence in the business, and in our future growth as more companies choose our search analytics platform as a core part of their IT infrastructure stack for building GenAI applications.”
Elastic Q4 Earnings Due This Week
Looking ahead, Elastic N.V. is expected to unveil its fiscal Q4 2024 earnings this Thursday, May 30, after the market closes.
The company projects Q4 revenue between $328 million and $330 million, a non-GAAP operating margin between 7.4% and 7.8%, and non-GAAP EPS between $0.18 and $0.20. Analysts are targeting Q4 adjusted EPS of $0.20 and revenue of $329.52 million, on average.
For fiscal 2024, management anticipates total revenue between $1.260 billion and $1.262 billion, a non-GAAP operating margin of approximately 11%, and non-GAAP EPS between $1.15 and $1.18.
Analysts tracking Elastic predict its GAAP loss per share to narrow by 42.1% to $1.13 in fiscal 2024, and then improve by another 7.1% to $1.05 in fiscal 2025.
What Do Analysts Expect for Elastic Stock?
On May 22, UBS initiated Elastic N.V. stock with a "Buy" rating and set a price target of $135, with the analysts saying that Elastic's AI potential is not fully reflected in its current stock price.
Drawing on insights from industry experts, customer, and partners, UBS now believes that Elastic stock is undervalued at 6.9x projected 2025 revenues - which is based on the firm’s above-consensus forecast for 18.7% revenue growth in fiscal year 2025, driven by an expected $15 million incremental opportunity in the Elasticsearch Relevance Engine (ESRE).
Elastic has a consensus “Moderate Buy” rating overall. Of the 23 analysts covering the stock, 14 advise a “Strong Buy,” one gives a “Moderate Buy,” and eight suggest a “Hold.”
The mean price target of $125.35 suggests an upside potential of 25.6% from the current price levels, while the new target of $135 from UBS is a 35.2% premium. The Street-high target price of $155 for Elastic implies the stock could rally as much as 55%.
On the date of publication, Sristi Suman Jayaswal 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.
