Stock Analysis & Ideas

Alteryx Stock: Be Prepared for More Downside Potential

Story Highlights

A 17% drop in the share price of Alteryx shows that the market is not on board with the company’s growth strategy. Bearish sentiment is fueled by higher borrowing costs prompted by rate hikes. More expensive access to debt capital can reveal further weaknesses in the company’s business model, negatively affecting its share price.

So far this year, bearish sentiment toward growth stocks has done significant damage to Alteryx’s (AYX) stock price, which is down about 17%. As macroeconomic conditions unfold in a way that favors further downside in Alteryx stock, I am bearish on the stock.

Based in Irvine, California, Alteryx provides advanced data analytics for analysts, engineers, and scientists. These professionals use that information to construct repeatable and error-free processes that organizations around the world use to improve their business efficiency.

Factors Promoting Bearish Sentiment

The continuation of a highly uncertain economic environment that is far from favorable for growth technology stocks should continue to put pressure on Alteryx’s share price.

Higher interest rates to curb runaway inflation will drive up borrowing costs, prompting more investors to switch from growth stocks like Alteryx to value stocks.

Like many other growth stocks, Alteryx has benefited from accommodative, low interest rates, as it has been able to raise debt to fund its growth. The company’s business model has attracted investors, although it hasn’t always delivered positive returns.

However, now that the Federal Reserve is enacting tighter monetary policy, the music is changing. Higher borrowing costs can hurt Alteryx, as its debt finances an investment project that does not raise cash but destroys it. The consequences for shareholders will likely be felt in the coming weeks.

The company and analysts are forecasting negative earnings for 2022 as well. If earnings come in negative, which is very likely, it will certainly not be positive for the balance sheet and can potentially drive shares lower from current levels.

Q1 2022 Saw Higher Revenue but Negative Income

In Q1 2022, Alteryx saw total revenue increase nearly 33% year-over-year to approximately $158 million, exceeding analysts’ median estimate by $12.1 million. However, EPS was negative again, coming in at -$0.40 versus analysts’ estimate of -$0.59.

Alteryx Expects a Net Loss in Q2 and FY 2022

Looking ahead to Q2 2022, the company expects revenue of between $159 million and $162 million (up 32% to 35% year-over-year) versus a consensus of $161.02 million. Meanwhile, the net income per share should range between -$0.61 and -$0.58, versus a consensus of -$0.60.

For the entire year, the company expects revenue of between $730 million and $740 million (up 36% to 38% year-over-year) versus a consensus of $734.71 million. Net income per share should range between -$0.56 and -$0.46, versus the -$0.55 consensus.

Alteryx Has Relatively High Debt and is Destroying Value

As of March 30, 2022, Alteryx’s total debt was $970.2 million, double the total cash and equivalents of $458.4 million.

Alteryx’s weighted average cost of capital is 6.03%, while its return on invested capital (ROIC) is around -13%, meaning that Alteryx is destroying shareholder value. This situation will continue as long as the company delivers returns that do not cover the cost of capital.

AYX needs to reverse this trend where each investment project has produced a negative return instead of a positive income. However, the prospect of higher borrowing costs makes it more difficult to achieve this target.

Wall Street’s Take on AYX Stock

In the past three months, 11 Wall Street analysts have issued a 12-month price target for AYX. The stock has a Moderate Buy consensus rating based on eight Buys and three Holds. 

The average Alteryx price target is $82.56, implying 64.6% upside potential.

Technical Analysis: AYX Has a Good Chance of Dropping Further

Alteryx shares are currently trading at $50 at the time of writing. The stock price is below its 50-day moving average of $52.30 and well below its 200-day moving average of $61.72.

However, Alteryx stock is still far from oversold levels, as indicated by its 14-day Relative Strength Index (RSI) of 48.5, meaning the stock price has plenty of room to reach lower levels.

The indicator ranges between 30 and 70. A reading of around 30 means the stock is oversold, while a reading of 70 means the stock is overbought.

So, the stock can continue to trade lower, as many traders are interested in the stock price falling further. These traders implement bearish trading strategies as they have a higher chance of success than many others amid rising-rate environments.

Conclusion – The Fed’s Hawkish Stance is Not Good for Alteryx

With AYX’s high debt and a business model that’s not thriving in the current hawkish environment, shares are likely to face more bearish sentiment. As a result, it’s likely best to stay away from the stock for now.

Disclosure

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