Sprout Social’s stock has been under pressure all year, as its growth rate has slowed. SPT traded at 32.45, down 77.5% since its high. Its valuation was $1.86 Billion.
Sales growth concerns despite a good product
Sprout Social, a leading software provider, is used by top companies such as HP, Cintas and Rackspace. Over 31,000 clients use its service globally.
The product allows companies to post on social media sites like X Facebook LinkedIn Pinterest and TikTok. The company also provides analytical tools to help these companies see their data and understand it.
Sprout Social faces a lot of competition in its industry. Hootsuite, Sendible and Zoho Social are its main competitors.
The social media sites themselves are a major competitor, since anyone can send or analyze posts easily without having to subscribe.
Sprout Social has seen its business grow in recent years. Its revenue has risen from $102.7 million in 2019 to more than $333.6 millions. It is estimated that the company’s annual revenue will reach $405 million in 2019, followed by $464 millions next year.
The latest quarterly results show that Sprout Social increased its revenue by 20 percent in Q3 (to $102.6 millions). Analysts predict that its revenues for the fourth quarter will be $106.7 millions, an increase of 14% over last year. Next year, it will make $10 million.
Profitability is a key issue that Sprout Social faces. In 2023 its annual loss was over $66.4 millions, up from the $50.2 million of the year before. Losses for the company’s last twelve months totaled $67.1 millions.
It’s time to leave Sprout Social. KeyBanc cuts target and downgrades to $28
SPT valuation concerns
Sprout Social’s biggest worry is that it will be difficult for its company to attract large customers as most businesses have a software solution based on social media.
Sprout Social stock also isn’t cheap, as its forward price to earnings ratio stands at 69.50. This figure is much higher than 25 which was the median for this sector. The valuation of Sprout Social is higher than other high-growth companies such as NVIDIA or Microsoft.
Rule of 40 is the best way to value a company such as Sprout Social. The Rule of 40 is a method that looks at the growth and profitability metrics for a company. A company’s value is considered fair if this metric exceeds 40.
Sprout Social, for example, has a 26% revenue increase and a 22% estimated growth. Net margins were minus 17 percent. The company has not achieved profitability. We can calculate the Rule of 40 by adding the revenue growth to the margins. This means that the company is largely focused on growth, and not profitability.
Sprout social stock analysis
TradingView SPT Stock
Weekly chart of SPT shows the stock has been on a downward trend since 2022 when it peaked at $145. The stock price has dropped to $22, bringing its market capital down from $8.7 to $1.6 billion.
Sprout Social stock is still below its key support at 38.31 dollars, which was also the lowest price in May 2023 or May 2022. Even a retest and break pattern was formed, which is a common continuation signal.
The SPT shares will continue to fall as the sellers aim for the key support level of $25.30 which is its lowest point this year.
The post Sprout Social shares are down 77% since their ATHs: Time to Buy the Dip? The ICD first published this post: Sprout Social stock is down 77% from its ATH. Time to buy the dip?
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