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With all the buzz around artificial intelligence (AI) stocks this year, the Internet of Things, more popularly known as IoT, has taken a backseat in terms of attention from investors. In practice, though, the Internet of Things hasn't gone anywhere - from VR headsets to smartphones to building automation, use cases for cloud-connected devices are all around us.
In fact, a study by market research firm Statista cited projections for worldwide annual revenues from IoT-enabled devices and applications to reach $621.6 billion by 2030 - almost tripling in 10 years.
Couple that with the ambitious growth forecasts for the AI space, and it's easy to see the appeal in a stock like Samsara (IOT) - an established company in the IoT industry whose enterprise computing products are powered by AI and machine learning.
Samsara Beats on Earnings
Founded in 2015 by MIT graduates Sanjit Biswas and John Bicket, Samsara is an IoT-focused technology company that offers cloud-based software solutions aimed at improving safety, efficiency, and sustainability by providing businesses with actionable, data-driven insights.
Shares of Samsara have more than doubled so far in 2023, comfortably outpacing a 31% gain for the Nasdaq Composite ($NASX). Samsara stock is up more than 101% on a YTD basis, and now commands a market cap of $12.65 billion.
The stock has now filled its bull gap from early June, which was sparked by a fiscal first-quarter earnings report that beat Wall Street's expectations on both the top and bottom lines. Quarterly revenues of $204.3 million were up 43% from the year-ago period, and surpassed consensus estimates by 5.85%. Samsara also reported a narrower-than-expected loss of just $0.02 per share, down from a loss of $0.05 per share in the year-ago period. This continued a positive trend for Samsara, which has matched or exceeded analysts' earnings estimates in each of the past four quarters.
The company remains free cash flow negative for now - although the outflow has slowed considerably, which is an encouraging sign. In Q1, the company reported an adjusted negative free cash flow of $2.2 million, down from $50.7 million in the year-ago period. Notably, Samsara expects to be free cash flow positive by the fourth quarter of the current fiscal year. And Samsara reported net cash provided by operating activities of $10.5 million in Q1, which compares favorably to an outflow of $48.8 million in the year-ago quarter.
The company reported growth in some other key metrics, as well. Annual recurring revenue (ARR) jumped by 41% from the previous year to $856.2 million. The rise in ARR was powered by 53% yearly growth in customers with ARR of more than $100,000, which now stands at 1,375. These larger customers tend to be “sticky,” and they now represent 49% of Samsara's ARR mix.
Looking ahead, Samsara is slated to report its results for Q2 next Thursday, Aug. 31.
IOT's Valuation vs. Peers
Samsara stock has rallied quite a bit this year, but a quick comparison of industry valuations suggests it's not yet overextended when compared to its other SaaS peers.
While Samsara is trading at a price/sales (p/s) ratio of 17.25, peers like Crowdstrike (CRWD) and Zscaler (ZS) are right in the same range, with p/s ratios of 14.75 and 13.88, respectively.
Likewise, Samsara's forward ev/sales ratio is at 13.73, only marginally higher than Crowdstrike (10.81) and Zscaler (12.02).
Analyst Estimates
Analysts remain confident about Samsara's ability to keep improving its bottom line. For the current quarter, Wall Street expects earnings growth of 7.69%, and 14.58% overall for FY24.
Overall, analysts remain cautiously optimistic about the stock. IOT has a consensus “Moderate Buy” rating with a mean target price of $27.50, denoting expected upside potential of about 10% from current levels. Out of 11 analysts covering the stock, 5 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating, and 5 have a “Hold” rating on the stock.
Final Takeaway
With a solid presence in the established and growing IoT market, plus the ability to leverage AI and machine learning advances, Samsara looks uniquely well-positioned to benefit from near-term industry growth. The company's strong fundamentals and consistently improving financials, with a “sticky” customer base, make it a compelling choice for investors who are looking to gain exposure to this exciting space.
That said, given the volatility around tech sector earnings so far this season, investors may want to proceed with caution on IOT until after next week's earnings-related event risk has passed.
On the date of publication, Pathikrit Bose did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
