nCino Inc., (NASDAQ: NCNO), received a major boost when Goldman Sachs raised its rating to Buy from Neutral. The new target price is $42, an increase from $34.
Goldman is increasingly confident in nCino’s abilities to overcome recent challenges and seize new opportunities.
Adam Hotchkiss, an analyst at Hotchkiss & Company noted that nCino will be able to beat headwinds like high mortgage rates and peak customer churn thanks to improved retention rates and cross-selling.
Hotchkiss cited nCino’s track record of innovation and its deep relationships with financial institutions, as two key factors for growth.
Expectations for Q2 and Q1 earnings
This upgrade is timely for nCino, as the company prepares to release its earnings for Q2 of 2024 on August 30, which will be a crucial report.
Analysts remain cautiously positive, predicting that the loss per share will be $0.08, a significant improvement over the loss of $0.14 per share in the Q2 2023.
The revenue is projected to increase from $117.2 millions to $131.08millions.
It is important to note that in the past 90 days 10 of the 11 Wall Street analysts who follow the company revised their EPS estimate downwards. This reflects some uncertainty regarding nCino’s performance near-term amid a difficult macroeconomic climate.
nCino’s Q1 results for 2024 showed resilience. The company reported a Non GAAP EPS (earnings per share) of $0.19 which exceeded expectations by $0.06.
The revenue for the third quarter reached $128.09 millions, which represents a 12.7% increase year over year and exceeded analyst expectations by 1.45 million dollars.
It also revealed a total Remaining Performance Obligation of $1,069 billion. This is up by 17% from last year and indicates a large backlog for future revenues.
From a basic perspective, nCino seems to be in a good place.
This company’s operational efficiency has improved significantly, as shown by the reduction of GAAP losses and an increase in non GAAP income.
The Q1 GAAP operating loss was $3.7 Million, which is a significant improvement over the $8.6 Million loss that Q1 2023 reported.
Non-GAAP Operating Income, however, has more than doubled from $10.9 to $24.4 Million in the same time period.
nCino’s growth drivers
nCino has been able to grow by expanding its wallet share among existing customers.
Cross-selling additional products has proven to be a powerful tool for the company to increase revenue and customer loyalty.
It is especially important for the Financial Technology space where customers can face high switching costs once they have integrated a platform such as nCino’s in their business.
nCino’s cross-selling has historically been able increase its customer’s annual contract values by up to two times over the course of the past few years. This is a testament to the success of the strategy.
nCino has a substantial market share as financial institutions and banks continue to invest heavily in digital transformation. Platforms that unify multiple banking processes onto a single platform are a better alternative than point solutions, as they often do not integrate seamlessly.
nCino has a strong position to grow its market share as banks are under increasing pressure to meet demands from a young, tech-savvy clientele. IDC research shows that the banking sector is likely to increase spending on cloud-based services with an expected growth rate of 20% through 2027.
Value for money
nCino is also unique in its approach to valuation. Analysts say that despite concerns about recent growth, the current valuation of nCino offers investors an appealing entry point.
Using a revenue-forward approach, analysts estimate that nCino will be valued at approximately $40=42/share, aligning closely with Goldman’s revised price target.
The valuation assumes a slow recovery of the economy. If nCino is able to accelerate growth above these estimates, then there could be further upside potential, particularly when compared with the averages of cloud technology companies.
High interest rates are a problem
There are still risks, especially in relation to macroeconomics. A rise in interest rates or a downturn in the mortgage market could affect nCino’s growth.
nCino has robust compliance capabilities that should mitigate these risks. It is crucial that the company be able to manage these external influences in order to maintain its momentum.
The upcoming earnings report for Q2 will provide a good indication of how nCino manages these challenges.
Investors are closely monitoring the revenue growth of the company, its profitability and any updates regarding its pipeline. Positive surprises could boost the market’s bullish mood.
Recent business highlights from Cino also indicate that it is taking strategic steps to ensure long-term success.
Its expansion with M&T Bank, and its addition of clients such as an expert lender in UK, highlight the ability of the company to retain and attract large financial institutions.
Let’s move on to a more technical review of nCino, and we’ll dig into the charts in order to understand its price trend as well as the potential for upside.
Trade in range
Despite nCino stock’s significant fall from its highs of above $100 after the IPO, the last few months have seen it remain stable. It has traded in the $27-$35.6 range since June of last year.
TradingView NCNO Chart
To enter a trend upward, the stock must break through the upper range of the band and close above that level on a weekly basis.
Investors who believe the stock will rise can start a small position around $33 at the current price and increase it when the stock closes above $35.6 on a weekly basis.
Stop losss for long positions should be at least $26,95.
Investors with a negative outlook have an entry that is low risk. The stock can be shorted near $33.5, with a $36 stop-loss.
The stock can fall again and reach support at $27 where you can take profits.
The post Goldman Sachs Upgrades nCino To Buy With $42 Price Target: Should You Invest? This post may change as new information unfolds
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