Cloud stock Confluent is getting close to a buy point, extending a rally that started with its first-quarter earnings report. The stock is the IBD 50 Stocks To Watch pick for today.
Confluent spun off from LinkedIn in 2014 and retained the Apache Kafka technology designed by LinkedIn. Kafka is primarily used to build adaptable real-time streaming data pipelines and applications.
The software tracks and stores events such as sales, orders, trades and customer responses, for historical and real-time data analysis.
Application use includes multiplayer games, real-time fraud detection, social media feeds, stock trading platforms and GPS tracking.
Its approximately 4,690 customers include Lowe's, Humana, Citigroup, Dick's Sporting Goods and Expedia.
The data streaming company holds a middle-of-the-pack 11th ranking out of 27 stocks in the database software industry group. The group soared to No. 5 on the list of 197 IBD industry groups, up from 45th place four weeks ago.
Confluent made its Nasdaq trading debut on June 24, 2021. The CAN SLIM investing strategy shows that most big stock gainers had their initial public offering (IPO) within one to 8 or 10 years ago.
Cloud Stock Nears A Buy Point
Confluent is forming a cup base with a 29.82 buy point. Shares popped 16.2% on May 4, after the company reported Q1 earnings and gave earnings guidance the prior day. CFLT gained about 44% since the 19.87 low of the base on May 3, which is when the company announced quarterly results.
The stock last week cleared resistance around 26.
The stock is about 2% away from the buy point, and has gained about 27% this year so far. Although impressive, CFLT has a long way to go to reach its all-time high of 94.97, posted on Nov. 5, 2021.
Shares have been rangebound for about a year.
Confluent Posts 89% Cloud Revenue Growth
Confluent has a history of outperforming quarterly earnings and sales consensus. The company kept the trend going, with a smaller-than-expected first quarter loss on higher revenue.
It posted a Q1 9-cent loss on $174.3 million in sales. First quarter revenue growth decelerated to 38%, from 41% and 48% in the prior two quarters.
"Confluent started fiscal year 2023 with a strong first quarter, beating all guided metrics and highlighted by 89% year-over-year growth in Confluent Cloud revenue," said Jay Kreps, co-founder and CEO.
Its revenue comes mainly from annual subscriptions and it is a software-as-a-service (SaaS) provider.
The cloud data company reported 1,075 customers with $100,000 or greater in annual recurring revenue (ARR), up 34% year over year.
Management gave a second-quarter revenue forecast of $181 million to $183 million, and a full-year estimate of $760 million to $765 million. It sees a total addressable market (TAM) going from $60 billion in 2022 to $100 billion in 2025.
Confluent reported higher inflation and interest rates, bank failures and related uncertainty, supply chain challenges and foreign currency fluctuations as adverse conditions, and expects these to continue to be headwinds.
Confluent holds a 57% three-year sales growth rate, according to IBD Stock Checkup. Analysts project a 17-cent loss per share this year, with a profit of 10 cents per share in 2024. It would be the company's first profitable year, according to MarketSmith.
Mutual Funds Take Notice Of Cloud Stock
Mutual funds own 61% of the stock and have been adding shares, with 435 holding its stock in March, up from 410 in December and 366 in September.
IBD Mutual Fund Index component Lord Abbett Developing Growth Fund A (LAGWX) added 1.11 million shares in March, on top of 820,000 shares it acquired in December.
Confluent will host an investor day on June 13 in New York.
Follow Kimberley Koenig for more stock news on Twitter @IBD_KKoenig.
