Sumo Logic: Fast Growing SaaS Stock, Priced At Less Than 8x Forward Sales

Summary

• Recently IPOed and already fallen from grace.
• However, once we go through its opportunity, we start to better understand the reason for its lackluster performance.
• Nonethless, this SaaS stock trades for less than 8x forward sales, despite growing at rapid clip.
• Compared with Splunk, that is priced at 11x forward sales, Sumo Logic is both growing faster and cheaper.
• Looking for more investing ideas like this one? Get them exclusively at Deep Value Returns. Get started today »

Investment Thesis

Sumo Logic (SUMO) is a big data platform. By my estimates, it's likely to grow into fiscal 2022 at roughly 30% y/y, which is would be a marked deceleration from its recent trajectory but this estimate affords shareholders a margin of safety.

If Sumo Logic reaches $272 million by January 2022 (its year-end, fiscal 2022), a fairly conservative estimate, this puts its stock trading for less than 8x forward sales.

Not only is this cheaply valued in absolute terms, but it is a meaningful discount to its bigger peer, Splunk (SPLK). This investment is worthwhile considering. Here's why:

What is Sumo Logic?

Sumo Logic names itself a Continuous Intelligence Platform. As machines create an ever-increasing amount of data, from apps, IoT, cloud, and everything in between, there's an overabundance of data.

This makes it very difficult for businesses to go through the data manually, analyze it, ingest, and ultimately respond to the data in a timely fashion.

This is where Sumo Logic steps in. On the back of the theme that in the ''new normal' post-COVID world has accelerated its digitalization, Sumo Logic is a backend infrastructure software that monitors and troubleshoots their applications. For companies that wish to innovate or die, Sumo Logic makes that transition easy.

It operates in the cloud and on-premise. Sumo Logic detects and resolves modern security threats and works with the data to gain visibility into customer behavior.

Put simply, Sumo Logic analyzes complex unstructured machine data and helps its users make timely decisions.

Unstable Revenue Growth Rates

Source: author's calculations, SEC filings

For fiscal 2019 its revenues were up 53% y/y, while fiscal 2020 was up 50% y/y (data not shown).

However, more recently, as we can see above, there's been a slight tapering off in its growth rates. While fiscal Q3 2020 its revenue

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, but may initiate a long position in SUMO over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.