What happened
Shares of database software specialist MongoDB (MDB 2.35%) declined 11.5% in December 2019, according to data from S&P Global Market Intelligence. The move was triggered by a polarizing earnings report.
So what
Third-quarter sales rose 52% year over year, landing at $109 million. Adjusted net losses doubled to $0.26 per share. The analyst consensus had been calling for a larger loss of $0.28 per share on approximately $100 million in top-line revenue, so the company exceeded Wall Street's targets. The stock opened the next day's trading more than 10.5% higher.
But the gains did not last. MongoDB's shares closed the same day 1.4% lower, and the plunge continued for a few more days. By the end of Dec. 12, the stock traded 5% below the prices seen just before the earnings report, completing a plunge of 14% from the top of that three-day period. You see, the earnings surprise just wasn't big enough to support MongoDB's lofty valuation.
Image source: Getty Images.
Now what
It's difficult to find a fair value for this stock, because MongoDB isn't profitable in any way, shape, or form. The stock trades at 10 times trailing sales and 36 times the company's book value, which qualifies for the nosebleed section of Wall Street. That's after the earnings-based price drop and the updated financial performance in that report. Before the third-quarter report, MongoDB traded at 19 times sales.
The stock might run across a few more speed bumps in the coming years, triggering price adjustments until the bottom line emerges from the red-ink territory it inhabits today. That's part and parcel of investing in high-growth companies. MongoDB is a fantastic company with a stellar future, even if its share prices are facing a bumpy road. Savvy investors may want to buy in on big dips like the one it experienced in December.
