We came across a bullish thesis on monday.com Ltd. (MNDY) on Rijnberk InvestInsights’ Substack by Daan Rijnberk. In this article, we will summarize the bulls’ thesis on MNDY. monday.com Ltd. (MNDY)’s share was trading at $268.90 as of Nov 14th. MNDY’s trailing and forward P/E were 625.35 and 68.97 respectively according to Yahoo Finance.
A tech savvy businessperson working on multiple devices, utilizing the company’s cloud-based platform.
Monday.com recently experienced a significant stock price drop despite a strong third-quarter performance that beat expectations on revenue and earnings. Contrary to typical reasons for such a decline, Monday’s results were solid—management is effectively driving growth, expanding margins, and increasing retention rates. The company exceeded Wall Street’s top- and bottom-line estimates and even raised its full-year 2024 guidance. Yet, shares fell by 20% in just two days due to an elevated pre-earnings valuation of 93x earnings and 16x sales, which set high market expectations that couldn’t be met without an extraordinary outperformance. Thus, despite its operational success, Monday’s stock price retracted to August levels, around $270 per share, just above the $250 range previously identified as a buying opportunity.
The fundamentals of Monday.com remain strong, with the company’s Q3 performance reinforcing confidence in its growth and profitability. Its low-code, no-code Work OS platform, which allows users to build custom work management solutions, continues to gain popularity. Since launching as a collaboration tool in 2014, Monday has expanded into other enterprise software areas, including CRM, human resources, and software development, allowing it to serve a diverse range of businesses. With a growth rate averaging 35% over the last three years and a 30% free cash flow (FCF) margin, Monday.com has established itself as a high-performing SaaS company worthy of its premium valuation.
In its latest results, Monday reported Q3 revenue of $251 million, marking a 33% year-over-year increase. Demand remained strong, with limited slowdown despite industry-wide budget constraints. The company’s net retention rate climbed to 111%, up from 110%, driven by improved retention across both small and large customers. Monday’s strategy of expanding within its existing customer base through cross-selling and upselling has been key to sustaining growth. For instance, Monday’s second-largest client recently doubled its seat count, highlighting the effectiveness of its land-and-expand approach. By initially securing smaller deals and gradually offering additional products or upgrades, Monday maximizes revenue potential from each customer, expanding its footprint with both new and existing clients.
The company’s dual growth engines—adding new customers and increasing revenue per existing user—are yielding positive results. Large customer accounts are growing faster than the company’s revenue, up 40% in Q3, as major clients continue to adopt more seats and products. This focus on innovation has seen Monday introduce new offerings within its platform each quarter, bolstering its ability to meet evolving business needs. Management expressed confidence in Monday’s role in shaping the future of work by continuously investing in new technologies and expanding its product suite. Currently, Monday is enhancing its AI capabilities with no-code AI features that allow customers to create tailored applications. Although still in beta, these AI features saw rapid adoption between Q2 and Q3, with usage increasing by 150%, underscoring a strong growth area that is likely to provide additional revenue streams.
Beyond innovation, Monday’s efficient platform architecture gives it an edge in cost-effective product development, with multiple software stacks sharing a common core on its Work OS platform. This shared structure has enabled Monday to launch new solutions quickly and with minimal resources while maintaining high levels of customizability, a feature highly valued by users. Upcoming releases, such as Monday Service, are expected to attract further adoption and deepen existing client relationships, reflecting the platform’s continued evolution and Monday’s capacity to respond to shifting market demands.
Financially, Monday has been making impressive strides in margin expansion. The company maintained a gross margin of 90% last quarter, surpassing its long-term target. Operating and net margins have also grown, although they recently plateaued as Monday increased R&D spending. This slight dip, however, is viewed positively as it reflects investment in new product development, which aligns with the company’s long-term growth objectives.
Ultimately, Monday.com’s robust performance and sustained innovation affirm its premium valuation and status as a leader in the SaaS market. While the recent stock drop highlights market volatility, it does not reflect any fundamental issues with the business, making this an intriguing entry point for long-term investors.
monday.com Ltd. (MNDY) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 43 hedge fund portfolios held MNDY at the end of the second quarter which was 46 in the previous quarter. While we acknowledge the risk and potential of MNDY as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MNDY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.