This year marked a significant recovery period for the stock market, with the S&P 500 Index ($SPX) having surged 24% year-to-date. The tech sector, in particular, flourished amid the artificial intelligence (AI) boom. While Wall Street generally believes that the titans of tech have a brighter future ahead of them, there are a few under-the-radar growth stocks that also pique the interest of analysts.
The first stock we'll discuss in this article is customer engagement software company Braze (BRZE), whose shares have risen 109% YTD, boosted in part by its strong Q3 fiscal 2024 results. The second company we'll look at is Smartsheet (SMAR), a cloud-based software company whose stock has risen 22%, so far in 2023, driven by its robust fundamentals and an upbeat near-term outlook. Let's look closer to see why Wall Street is so optimistic about these two stocks.
What Does Braze Do?
Braze (formerly known as Appboy) is a comprehensive customer engagement platform that works to foster meaningful connections between brands and their customers. As the digital marketing world evolves, customer engagement is becoming crucial to driving Braze’s fundamentals.
In its third quarter of fiscal 2024, ended Oct. 31, net revenue grew 33.1% to $124 million, driven by customer retention and new customers. The company operates through two segments. While subscription sales increased 31% year-over-year, professional services and other sales were up 35% from Q3 fiscal 2023.
Management stated that in order to increase engagement, the company has added more AI solutions to its platform, including "AI Recommendations, Canvas AI Step, and Message Content Recommendations." Furthermore, 189 of Braze's customers reported annual recurring revenue (ARR) of $500 million, compared to 148 customers in the year-ago quarter - which implies a growing demand for its services.
The company isn’t profitable yet, but is working to narrow its adjusted losses, which were whittled down to $0.05 per share from $0.15 per share in Q3 fiscal 2023.
For the full fiscal year 2024, management expects revenue in the range of $465 to $466 million, with adjusted losses per share ranging between $0.26 and $0.27, in line with analysts’ predictions. Plus, management is confident of achieving adjusted operating profitability and generating free cash flow by fiscal 2025.
What Are Analysts Saying About Braze Stock Now?
Braze stock has a “strong buy” rating among analysts. Out of the 17 analysts covering the stock, 13 rate it a “strong buy,” two rate it a “moderate buy,” and two rate it a “hold.” The mean target price of $68.12 for BRZE stock implies an upside potential of more than 25% over the next 12 months.
What Does Smartsheet Do?
Smartsheet is a cloud-based platform that assists businesses in managing and streamlining workflows. It allows users to create, automate, and track a wide range of projects, from simple task lists to complex workflows, by utilizing familiar spreadsheet-like formats, cards, calendars, and other tools.
Furthermore, Smartsheet's automation capabilities help to streamline workflows by automating repetitive tasks and integrating with a variety of third-party applications, such as Microsoft (MSFT) 365, Alphabet's (GOOGL) Google Workspace, and Salesforce's (CRM) Slack. Its robust third-quarter results are a testament to its growing demand.
In the third quarter of fiscal 2024, total revenue increased 23% year-over-year to $245.9 million. While its subscription revenue jumped 25% year-over-year to $232.5 million, professional services revenue remained flat for the quarter. Calculated billings, which measure sales generated from both new and existing customers, jumped 22% to $268.5 million in the quarter.
Furthermore, its average annualized contract value (ACV) per domain-based customer increased by 16% year-over-year. The company defines average ACV per domain-based customer “as total outstanding ACV for domain-based subscriptions as of the end of the reporting period divided by the number of domain-based customers as of the same date.” In other words, it reveals customers' loyalty to the platform.
Smartsheet also reported adjusted earnings per share (EPS) of $0.16, compared to a loss of $0.01 per share in the year-ago quarter. Furthermore, the company also generated a free cash flow of $11.4 million, which should allow it to invest in more AI projects and pay down debts. For the full fiscal year, the company expects to generate $130 million in FCF.
Smartsheet is also committed to incorporating emerging technologies such as AI and machine learning to make itself more appealing to businesses looking for cutting-edge solutions. AI advancements and continued growth in the fourth quarter signal a strong end to 2023.
Looking ahead, management anticipates 20% year-over-year growth in billings for the full fiscal year. Total revenue could land in the $955 million to $957 million range, indicating 25% year-over-year growth at midpoint. Adjusted EPS could range from $0.68 to $0.69. Meanwhile, analysts predict $0.69 EPS on $956.8 million in revenue.
In this modern era, where remote work and distributed teams are the norm, market demand for work management solutions is at an all-time high. This is likely why Wall Street believes the company has exceptional long-term potential. Analysts predict that Smartsheet's revenue and earnings will increase by 19.4% and 36.5%, respectively, in fiscal 2025.
What Are Analysts Saying About Smartsheet Stock Now?
Driven by a strong quarter and upbeat full fiscal year outlook, analysts at KeyBanc, Guggenheim, RBC Capital, Canaccord, Jefferies, and a few more have recently raised their target prices for SMAR.
Overall, Smartsheet has a “strong buy” rating on Wall Street. At present, 14 out of 18 analysts rate the stock a “strong buy,” with one “moderate buy,” and three “hold” ratings. The average analyst target price of $55.06 signifies a potential upside of 15.5% in the next 12 months.
