Sumo Logic: Under-The-Radar Play on AI-Based Security

Sumo Logic (SUMO), a pioneer of continuous intelligence software, reported first quarter results last week, which the Street noted as the stock price rose by 8% to $20.24. The company’s market capitalization is at $2.20 billion.

SUMO came public last September at $22 per share and rose by 22% on debut. The stock then staged an impressive rally, with the price hitting $39 in February. (See Sumo stock analysis on TipRanks)

With the tech sell-off, SUMO’s stock has also come under pressure, though providing an opportunity for investors. 1Q Fiscal 2022 revenues rose by 15% to $54.2 million and were up 18%, when excluding the company’s largest customer. 

Though SUMO posted a net loss of $26.9 million or 26 cents a share, it was able to generate positive operating cash flows of $2.7 million. The company holds around $408.5 million in cash.

SUMO’s Background

Founded in 2010, the company has built a cloud-native platform that aids to process and analyze significant sizes of data. A key feature is its technology that analyzes and predicts anomalies real-time, which is essential for cybersecurity.

SUMO also expanded its products to other categories. One is operational intelligence for trouble shooting and optimizing applications and infrastructure, which results in lower downtime and improved customer experiences.    

Another category is BI (Business Intelligence). Organizations can make better data-driven decisions based on SUMO’s out-of-the-box dashboards and search capabilities. 

Security application is SUMO’s main driver, and its global demand is likely to grow at a strong pace during the long haul. With the recent high-profile ransomware attacks in several regions, there are opportunities to be addressed. Even the Biden administration in the U.S. has considered these threats on par with terrorism.

Hence SUMO has been ramping up its deal-making in the security space. For example, it acquired DFLabs, a provider of SIEM (security information and event management) services. The platform reduces manual tasks and quickens problem detections. 

SUMO also agreed to acquire Sensu, a leading developer of open-source software for monitoring, which is a significant observability tool in the space.

Wall Street’s Take

Among the analyst community, SUMO’s stock had 5 Buys and 2 Holds assigned in the past three months, with a consensus of Moderate Buy. The SUMO average analyst price target of $26.29 implies 27% upside potential, with a high forecast of $35.00 and a low of $19.00.

Bottom Line on Sumo Logic

The company is still in the early stages of market opportunity, which is estimated at over $50 billion. SUMO’s solutions address next-generation security issues based on critical technologies like artificial intelligence and machine learning.

The company’s valuation appears reasonable, with the stock trading at around 4.5x. SUMO’s new acquisitions provide cross-sale opportunities across the organization, which will likely increase growth. 

Thus, SUMO holds the potential for investors eyeing trends in technology. 

Disclosure: Tom Taulli has a long position in the SUMO stock.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.