Darspal S Mann
Long/short equity, growth at reasonable price, special situations, deep value

Growth Deceleration May Revalue Rally Software Stock

Executive summary:

  1. Enthusiasm, usually reserved for the Cloud stories, around Rally Software seems misplaced.
  2. Leading indicators of the business are pointing towards a weakening growth momentum.
  3. Stock may correct 30%-40% as expectations and stock valuation get re-adjusted for the changing dynamics.

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Rally Software Development Corp. (NYSE:RALY) went public last year, along with major Cloud-based service providers. Even till now, the excitement around Rally's stock is equal to other Cloud-based consumer services companies or Cloud-based Enterprise services companies, but as a provider of tools for Agile software development, revenues are driven more by developer seats, thus, following a slower growth trajectory.

Recent deceleration in some of the leading indicators of the business is suggesting that the fundamentals,...

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