1 Growth Stock Down 48% to Buy Right Now

Docebo is a tech stock trading 48% below all-time highs and at a discount to consensus price target estimates.

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Canadian investors with a high-risk appetite can consider purchasing shares of beaten-down growth stocks such as Docebo (TSX:DCBO). Valued at $1.85 billion by market cap, Docebo stock is down 48% from all-time highs.

The TSX tech stock was trading near all-time highs in September 2021 and has since trailed the broader markets by a wide margin as investors were worried about inflation, rising interest rates, and the steep valuations surrounding growth stocks.

Let’s see why you should buy Docebo stock at its current multiple.

An overview of Docebo

Docebo is an enterprise-facing e-learning company founded in 2005. Over the years, Docebo has witnessed significant changes in the way companies approach learning. For instance, corporate e-learning solutions were once considered “nice to have.” But in recent years, several companies are investing heavily in this space to upskill their workforce.

Docebo initially offered its solutions as an open-source model that was installed directly on customer servers. More than a decade back, it transitioned to a cloud-based software-as-a-service platform, resulting in a predictable stream of recurring revenue across market cycles.

Docebo emphasized it was the first e-learning company to integrate artificial intelligence into its products, offering it a competitive advantage. It explained, “We believe that artificial intelligence is transforming corporate e-learning into a competitive advantage for enterprises since it allows enterprises to get data-driven insights so that they can enhance a learner’s experience and improve their workforces faster and more effectively.”

Is Docebo stock a good buy right now?

Despite a challenging macro environment, Docebo increased revenue by 26% year over year to US$46.5 million in the third quarter (Q3) of 2023. Its subscription sales stood at US$43.6 million, accounting for 94% of total revenue.

Similar to most other tech stocks, Docebo enjoys a high gross margin of 81.1%. However, the company continues to invest heavily in customer acquisition and retention, allowing it to end Q3 with an adjusted net income of US$5 million, or US$0.15 per share. In the year-ago period, its net income stood at $1.5 million, or $0.04 per share.

Docebo ended Q3 with an annual recurring revenue of US$181.8 million, an increase of 26% year over year. Its adjusted earnings before interest, tax, depreciation, and amortization stood at US$4.5 million or 9.7% of total sales.

What is the target price for Docebo stock?

Docebo’s steady top-line growth in recent years has allowed it to report consistent profits. Its free cash flow in Q3 stood at US$8.4 million, accounting for 18% of total sales, up from just US$0.6 million in the year-ago period.

A widening cash flow margin should allow Docebo to reinvest in organic growth projects as well as target accretive acquisitions.

Around 3,679 customers use Docebo’s suite of solutions, up from 3,245 customers in the last year. It suggests the company’s annual contract value has increased to US$49,416 from US$44,561 in the last 12 months.

Docebo is successfully expanding its customer base and customer spending and is on track to end 2023 with $242 million in sales. Analysts tracking Docebo expect its adjusted earnings to almost triple to $0.77 per share in 2024, up from $0.28 per share in 2022.

Priced at 78 times forward earnings, DCBO stock is not cheap, but analysts still expect shares to surge roughly 30% in the next 12 months.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Docebo. The Motley Fool has a disclosure policy.

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