Will This Stock Double Your Money By 2032?

If you not familiar with Smartsheet Inc. (NYSE:SMAR) it’s a system that manages workflows within companies of all sizes.

It’s a cloud-based platform that allows for work management and collaboration, featuring various tools for project management, task tracking, and automation.

The company’s solutions, which allow teams to plan, track, and manage work through customizable interfaces are a primary reason that 80% of the top Fortune 500 companies have chosen it.

To put it simply, Smartsheet streamlines workflows in order to boost productivity and communication within organizations.

And for investors the opportunity to get in now presents a compelling investment case, not least because market growth is forecast to be enormous.

Smartsheet Operates In Growing Sector

The global market for Software as a Service (SaaS), which was worth of $273.55 billion in 2023, is expected to grow by up to $1.23 trillion in 2032 at a compounded annual growth rate of 18.4%.

Smartsheet falls squarely into the SaaS category and is in a good position to take advantage of expected growth in the sector. 

Given the market is expected to grow beyond a trillion dollars within 8 years, Smartsheet has an enormous opportunity to establish itself as a leading player in the enterprise work management field, but will it?

Is Smartsheet Growing Fast?

Smartsheet has already taken advantage of growth in the SaaS market. As of Q1 2024, the company reported over 14 million users, and in the fourth quarter of fiscal 2024, there were 98 customers who increased annual recurring revenues to over $100,000.

During the same quarter, Smartsheet also added respected organizations like Nutanix, the University of Southern California, Genesis Motor America, the city of San Jose, and Dairy Queen.

The introduction of its free plan and self-discovery initiatives in FY 2024 has also led to impressive traction. In January, Smartsheet gained 500 new customers who originally signed up via the free plan and subsequently paid, thereby setting a new monthly acquisition record.

Self-discovery trials have been successful, too. Management reported seeing more than $2 million in capability bookings in the fourth quarter, which is two times higher versus the prior quarter.

These initiatives have greatly expanded the audience reach and, more importantly, been successful in converting to sales. Almost half of the sales from self-discovery in Q4 came from customers who were buying for the first time.

Management reported another impressive milestone when reporting over $1 billion in annualized recurring revenue (ARR) in Q4. ARR came in officially at $1.031 billion, a 21% increase versus the prior year. 

The number of customers who have an ARR at or above $100,000 also went up by 28% from one year to the next, showing that big companies are finding real value in the product.

How Smartsheet Is Going Global

Capitalizing on AI buzz, management launched new artificial intelligence tools in the fourth quarter to help clients be more efficient, such as AI Helper to analyze data.

These types of product successes have helped the company to grow internationally and reach users in more than 190 countries and territories, including 85% of Fortune 500 companies. 

Around 16% of the revenue originated from international customers in the fiscal year ending January 31, 2024, which highlighted that there is room to grow abroad. One key reason Smartsheet has been able to expand beyond US borders is that it’s offered in eight languages now.

The efforts to further boost global sales are a function of investment in both direct and partner-based selling outside the United States. Management has defined specific sales regions internationally and plans to collaborate with key resellers. Target countries include the United Kingdom, Australia, Germany, and Japan.

Other focus areas are in EMEA countries, meaning Europe, the Middle East, and Africa. Management also has its sights set on APJ, covering Asia Pacific along with Japan. 

A further customer segment that is in focus is government. Smartsheet Gov has received temporary permission to work through FedRAMP, a program that lets federal organizations and contractors manage tasks of all kinds. Smartsheet can also be found on the AWS GovCloud Marketplace, which offers “safe and rule-following” cloud options for federal needs.

Furthermore, Smartsheet Gov has received the DoD Impact Level 4 P-ATO, meaning it follows strict security rules that make it possible for Department of Defense clients to handle tasks within their own guidelines.

Combined, these efforts highlight how dedicated the top brass is to serving different customers from various sectors and geographies, and it also reveals the scale of the management team’s ambitions, but do the financials warrant investing?

Financials Are Strong

Smartsheet ended its most recent fiscal year with revenues totaling $958.3 million, a significant YoY rise of 25%. Billings have gone up nicely, too, reaching $1.069 billion which translates to a 20% increase year-over-year.

Income from operations (excluding GAAP metrics), was $100.9 million with a profit margin of 11%. Additionally, the free cash generated amounted to $144.5 million, equivalent to a 15% FCF margin. For the fourth quarter ending on January 31, 2024, company performance remained strong.

Net income reached $256.9 million, marking a 21% increase compared to the same period last year. A large portion of this amount, $244 million, was generated from subscriptions, signifying a growth rate of 23%.

Services revenue was also satisfactory, amounting to $12.9 million. It is worth mentioning that revenue from capabilities made up 34% of the subscription income.

In the prior three months, billings rose to $341.9 million, marking an increase of 19% when measured against the same period last year. Nearly all these billings, approximately 95%, originated from annual subscription plans. Only 2% were associated with monthly subscription services.

The billings that occur every three to six months made up approximately 3% of the total. Furthermore, there was a 21% rise in the yearly recurring income during the previous quarter.

Additionally, the company reported a high gross margin of 85% overall with subscription’s gross margin reaching 88% in the fourth quarter. The operating income stood at $39.6 million, representing 15% of all revenue.

Moreover, free cash flow for the quarter reached $56.3 million, marking a new high point within the quarter. With solid financials reported, the real question is what will the future financials be?

Smartsheet’s Future Projections

In the first three months of the financial year 2025, Smartsheet expects that income will be somewhere between $257 million to $259 million. The company predicts its non-GAAP operating profit will be around $32 million to $34 million while non-GAAP net earnings per share will be between $0.26 and $0.27.

For the full year 2025, management is aiming for revenues of between $1.113 billion and $1.118 billion, which represents an increase of about 16% to 17%. Services are set to account for nearly 5% of the overall revenue.

The expected non-GAAP operating income is between $135 million and $145 million, reflecting an operating margin of somewhere between 12% and 13%. For the year, Smartsheet estimates that the non-GAAP net income per share will likely fall between $1.06 and $1.13.

Also, for FY 2025, management expects that annual recurring revenue will grow by 14% with a cadence similar to last year where the sharpest growth comes earlier in the year. Free cash flow for FY25 is forecasted to be around $200 million.

Overall, Smartsheet made good progress in generating profits and cash without incurring high incremental costs.

Will Smartsheet Stock Go Up?

The consensus among analysts is that Smartsheet stock will go up by another 19.7% to fair value of $49.26.

Over the last three years, Smartsheet has grown revenues impressively at a CAGR of 35.5%. Total assets and levered free cash flow have increased nicely, by 13.6% and 70.5% respectively.

But the bottom line is arguably the most impressive aspect of the financials. Gross profit margin for the past 12 months stands at an astonishing 80.54%, significantly exceeding this industry’s average.

And over the past 12 months, cash flows have been strong with levered FCF margin coming in at 28.30%, much higher than the industry average of 9.50%.

Looking ahead, Wall Street has faith that Smartsheet will continue to expand. Collectively, they forecast a rise in both revenues and earnings per share over the next year.

The annual growth rate for revenue is estimated at 17.5% while EPS is expected to surge by 39.7%, leading to revenues reaching $258.29 million and EPS of $0.27.

For the second financial quarter of fiscal 2025, analysts anticipate that revenue will grow by 16.2%, and earnings per share will rise by 57.5%, equal to $273.83 million and $0.25, respectively.

Also, for the financial year that ends in January 2025, it is expected that revenue will increase by 16.5% from last year and come to $1.12 billion. Similarly, EPS is forecast to go up to $1.11, an increase of 30.5% compared with the past year. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.