My last article on Talend S.A. (TLND) was published six months ago. Entitled "Talend: Stay Away This Year", I gave the company a neutral rating based on excessive cash burn and failure to meet the software Rule of 40. Since publication, Talend's stock price is down 10%.
A lot has happened in the last six months, including the issue of convertible senior unsecured notes, change of CEO, a new CRO, and new leadership in Europe. The new management intends to invest more in R&D, operations, and infrastructure.
... you see that we're on fire in cloud with our growth. And now, we want to make sure that we're taking every opportunity to put the right processes and systems in place to make sure that we can scale our business.
Given the already negative and falling free cash flow margin, so-so revenue growth, and allotting time for the new management to get its legs, I am re-issuing my neutral rating for Talend.
Stock Valuation
The following scatter plot of enterprise value/forward sales versus estimated forward Y-o-Y sales growth illustrates Talend's stock valuation relative to the 152 stocks in my digital transformation stock universe.
(Source: Portfolio123/private software)
A best-fit line is drawn in red on the scatter plot and represents a typical valuation based on next year's sales growth. Talend is positioned well below the best-fit line, implying that the stock is very undervalued relative to its peers.
The Sales/EV multiple tells me that the stock is undervalued, but my value assessment changes when I substitute next year's earnings estimates for forward sales.
(Source: Portfolio123/private software)
The results shown on this second scatter plot suggest that Talend is actually overvalued based on next year's earnings estimates.
Company Fundamentals
When it comes to software companies, I don't rely on traditional value factors; instead, I focus on
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