On Friday, Canaccord Genuity maintained a Buy rating on Freshworks Inc (NASDAQ:FRSH) but reduced the price target to $20 from the previous $27. The adjustment follows a period where Freshworks shares experienced a significant drop in value. The company's stock price declined by approximately 25%, which has led to its current valuation of around 4.5 times enterprise value to revenue (EV/R) based on the year's estimates.
According to the firm, the decrease in the price target reflects recent market dynamics where investors were showing increased interest in Freshworks ahead of the quarterly earnings report. Some of these investors might be engaging in a "last in, first out" (LIFO) trading strategy in response to the earnings release.
Despite the price reduction, the firm believes that Freshworks presents an attractive valuation at these levels. The company's stock is now considered to be potentially undervalued given its financial metrics, and it has been suggested that it could be a candidate for acquisition, placing it on the radar for potential buyers.
Canaccord Genuity's stance remains positive, with the expectation that the current dissatisfaction among investors will subside. The firm anticipates a possible rebound in the stock price in the future. The analyst stated that given the current low valuation, it does not warrant a downgrade, and the firm continues to recommend a Buy rating for investors.
InvestingPro Insights
As Freshworks Inc (NASDAQ:FRSH) navigates through market volatility, InvestingPro provides a deeper dive into the company's financial health and future prospects. With a market capitalization of $5.33 billion, Freshworks displays a robust financial position, holding more cash than debt on its balance sheet. This is a reassuring sign for investors considering the company's liquidity and financial stability.
Notably, Freshworks has been the subject of positive analyst sentiment, with 12 analysts revising their earnings upwards for the upcoming period. This optimism is reflected in the company's expected net income growth this year. Additionally, Freshworks boasts an impressive gross profit margin of 83.33% for the last twelve months as of Q1 2024, which is indicative of its efficient cost management and strong pricing power.
InvestingPro Tips reveal that while Freshworks has not been profitable over the last twelve months, analysts predict the company will turn a profit this year. Moreover, the stock's recent performance indicates that it is in oversold territory according to the Relative Strength Index (RSI), suggesting a potential buying opportunity for investors. It's worth noting that the stock has taken a significant hit over the last week, month, and three months, with price total returns of -20.44%, -16.93%, and -34.3% respectively, which may have contributed to the current undervaluation.
For investors seeking more comprehensive analysis and additional insights, InvestingPro offers a wealth of information. There are 11 more InvestingPro Tips available for Freshworks, which can be accessed through InvestingPro. Use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, providing a more informed investment decision-making process.
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