The recent tech-driven market correction cut the froth right off the top of many momentum stocks, many of which have been enjoying pandemic tailwinds. While there are still areas of overvaluation within the tech sector, I don’t think it’s fair for investors to shun the broader basket of high-tech growth plays solely because of their past momentum.
Yes, it’s foolish (that’s a lower-case f) to chase a stock solely on its momentum, but that doesn’t mean stocks that have doubled or tripled over the past year are to be shunned. When it comes to certain up-and-coming growth stocks, a high growth ceiling, exceptional managers, and industry tailwinds could be more than enough to keep the momentum alive for a lot longer than most “value” investors think. Not to mention the innovation factor, which could allow little-known mid-cap tech firms like Docebo (TSX: DCBO) to form a moat around its niche market in spite of its modest size.
Docebo’s client list gets even more impressive
As I’ve mentioned in many prior pieces, e-learning up-and-comer Docebo already boasts an impressive list of clients, most recently including the likes of Amazon.com (NASDAQ: AMZN), despite sporting a market cap just north of $1 billion. While there’s no question that the demand for learning management system (LMS) software has surged amid the COVID-induced work-from-home (WFH) shift, I think that such tailwinds are only one of many reasons to own the stock as it continues its climb.
“The company leverages next-gen Artificial Intelligence (AI) to make it easy to deliver, manage, track, and document learning resources,” I said in a previous piece, urging investors to buy Docebo stock despite more than tripling out of its March bottoms. “In a nutshell, Docebo offers an invaluable service that became that much more valuable amid the rise in demand for WFH software products that ease the pains that can come with working from home.”
A value-adding tech platform that many firms can’t afford not to use and one that was embraced by the titan that is Amazon. Sound familiar? Indeed, the Docebo story is starting to rhyme with that of Shopify’s. And I think Docebo could easily sport a valuation that’s multitudes higher than where it’s at now.
Docebo wins over the heart of Amazon Web Services (AWS)
In its biggest client win yet, Docebo added AWS to its ever-improving list of blue-chip clients. AWS chose Docebo’s cloud-based LMS platform for training and certification, and I think the move will start to attract the attention of other firms, potentially users of AWS services.
The AWS win, I believe, is a strong indication that Docebo may have a best-in-breed product in the niche LMS space. Innovative AI-levering technologies are the main component to Docebo’s moat, and as this pandemic drags on, count me as unsurprised if the AWS win opens the floodgates, as many other mega-cap firms look to gain any WFH advantage they can get amid these unprecedented times.
Foolish takeaway
Docebo stock popped 5.7% on Wednesday after a brutal past few days of excessive selling. Today, shares are down 19% from all-time highs, and with AWS in the bag, I’d say this dip is nothing short of a buying opportunity, as the company’s business looks to accelerate amid this pandemic.
Sure, the stock isn’t cheap at 19.2 times sales, but given the massive sales growth that could be on the horizon and the fact that Docebo isn’t even expensive as far as cloud stocks are concerned, I’d say now is as good a time as any to be a buyer.
