Alteryx Stock Forecast: Buy or Sell?

Alteryx [NYSE: AYX] has been getting a ton of attention in the financial media lately, and with good reason – its share price has exploded.

Over the past year, its share price has virtually tripled. That’s big news, but that doesn’t necessarily mean that the stock is a good addition to your portfolio at its current price.

Alteryx [NYSE: AYX] has already topped analyst estimates, which set its value at $99.33 per share. It may have topped out and be due for a price correction.

Decide for yourself by researching the stock. Let’s start by looking at what Alteryx [NYSE: AYX] actually does.

What Does Alteryx Do?

In a nutshell, Alteryx is a data analytics platform.

It shines in providing users with an easy-to-use interface. The platform collects and analyzes data from different sources and then delivers visual analytics and meaningful insights while developing workflows that are easy to repeat.

In other words, it tells you what all your data means, highlights the important stuff, and makes it easy to generate those same findings again so you can check on your progress.

Alteryx attracts customers by offering a free trial then it licenses its platform on a subscription basis, so users have to pay to continue using it. The Alteryx [NYSE: AYX] platform has four parts:

1. Alteryx Designer: a data analytics offering that creates visuals using drag and drop

2. Alteryx Server: a product that lets users run web-based analysis

3. Alteryx Connect: a platform for collaboration

4. Alteryx Promote: a model management offering centered around predictive models

According to Alteryx’s annual report, the company counts more than 500 firms from the Global 2000 in its customer list, which is saying something given that it only has around 4,700 customers.

Some of the company’s most prominent customers include Barclays [NYSE: BCS], Coca-Cola [NYSE: KO], Southwest Airlines [NYSE: LUV], Ford [NYSE: F], Microsoft [NASDAQ: MSFT], and Nike [NYSE: NKE].

Is Alteryx a Buy?

Right now, Alteryx [NYSE: AYX] is aggressively pursuing growth. Through the end of 2018, its expansion rate was over 120%. The company has been making major investments in marketing and sales as well as its infrastructure. It has been pursuing six main goals:

1. Attract more customers

2. Leverage existing customers by encouraging more users and more services

3. Expand the scale of operations to cover international markets

4. Collaborate with channel partners to add additional distribution channels

5. Engage user community, including university outreach efforts to attract early influencers

6. Improve value proposition

On this last point, Alteryx [NYSE: AYX] has made a series of acquisitions. It bought Semanta to improve its data governance then Yhat to improve analytic models.

These purchases helped the company acquire the technology and expertise it needed to develop its products into the analytics platform it is today, but they also left the company with a bit of a cash flow issue.

While the company has had positive and steadily growing revenue for the past few years, its earnings were in the red. That all changed coming into 2019.

Its EBITDA is $27.52 million and its operating cash flow is just over $30 million – that’s an encouraging change. The company’s books and financial health are worth noting too. Alteryx [NYSE: AYX] has a very strong balance sheet.

The company has a $367 million cash with $203.42 million in debt. That gives the company a current ratio of 1.58 suggesting that its operations are solid.

What are the Risks of Buying Alteryx?

That said, there are always risks, especially in this type of business.

Easy to scale platforms may also easy be to replace. Plus, there is the company’s track record. It has always lost money, spending more than it makes. While that trend has changed lately, the company is still keeping on this expansion track and it expects to incur more expenses and experience more loss in the future.

It’s aggressive and could pay off, but it may also happen or be the case that the company simply doesn’t know how to operate in a fiscally responsible manner.

Moreover, as the company grows and ramps up its operations, it will need to be even more strategically sound than it is now. It’s one thing to juggle three balls in the air, it is quite another to juggle 100. Alteryx [NYSE: AYX] is trying to grow into a major player, but if it doesn’t have the infrastructure to support operations of that scale, that whole thing could tumble.

The company has been around since 1997 but it has effectively lived several different lives in that span. For instance, it has only been using a subscription model since 2013. Alteryx will need to be able to plan for its growth, afford it all, and develop its internal operations to be able to handle operations of that scale.

This company is facing some real challenges.

Establishing itself as a credible platform is only the beginning. It needs to keep its existing customers happy and attract new ones.

It needs to continuously improve its product offerings and keep the software running smoothly or no one will be happy, and Alteryx [NYSE: AYX] will lose the market it has worked so hard to capture.

Security is also a concern. To put it bluntly, the company may not have the chops to maintain its operations and become profitable once it does grow.

Alteryx Stock Forecast: Buy or Sell?

Alteryx [NYSE: AYX] has exploded over the past year. Turning profitable was icing on the cake. Now the company is still talking about expansion.

While its operations seem to be solid based on its financials, this is a company aggressively pursuing growth in uncharted waters.

It will need to ramp up its operations as well as its infrastructure to handle it all.