Smartsheet Inc. (SMAR) is set to unveil its fiscal 2024 third-quarter financial results on December 7. Wall Street projects the company to disclose earnings per share of $0.09 for the quarter. Furthermore, revenue expectations stand at $241.30 million, manifesting a year-over-year growth of 20.9%.

The company outperformed expectations in every aspect of its guidance in the second quarter of fiscal 2024. The platform's robust scalability supported increased demand from companies seeking secure and consistent solutions for managing mission-critical workflows.

In its fiscal 2024 second quarter release, SMAR stated that it expects total revenue of $240 million to $242 million for the fiscal third quarter, indicating a year-over-year growth of 20% to 21%. Furthermore, it anticipates a non-GAAP operating income of $8 to $10 million and a non-GAAP net income per share of $0.08 to $0.09.

In addition, for the full fiscal year 2024, the company anticipates total revenue of $950 million to $953 million, representing a 24% year-over-year increase. It expects non-GAAP operating income of $62 million to $67 million and non-GAAP net income per share of $0.53 to $0.57.

Shares of SMAR have gained 16.3% over the past month and 23.9% over the past year to close the last trading session at $45.26.

Here are the financial aspects of SMAR that could influence its performance in the near term:

Solid Last Reported Financials

For the fiscal 2024 second quarter that ended July 31, 2023, SMAR’s total revenue increased 26.2% year-over-year to $235.59 million. Its non-GAAP operating income came in at $19.22 million, compared to an operating loss of $16.08 million in the prior year’s period.

In addition, the company’s non-GAAP net income and non-GAAP net income per share stood at $22.01 million and $0.16, compared to a non-GAAP net loss and non-GAAP net loss per share of $13.53 million and $0.10 in the previous year’s quarter, respectively.

Positive Analyst Estimates

The consensus revenue estimate of $1.15 billion for the fiscal year ending January 2025 reflects a 20.6% year-over-year improvement. Moreover, the company’s EPS for the next fiscal year is estimated to come in at $0.79, up 43.1% from the prior year. Furthermore, SMAR topped the consensus revenue estimates in all four trailing quarters.

Stretched Valuation

In terms of forward non-GAAP P/E, SMAR is trading at 81.01x, 260% higher than the industry average of 22.51x. Moreover, its forward EV/Sales of 5.83x is 114.1% higher than the 2.72x industry average. Also, SMAR’s forward EV/EBITDA of 58.38x is 289.8% higher than the 14.98x industry average.

Insider Selling

There has been a notable trend of insiders divesting SMAR stocks. In the last three months alone, a substantial 308,024 shares were offloaded through 23 sell trades. Zooming out to the past 12 months, a total of 55 sell trades have occurred, signaling a consistent pattern of insider selling.

Robust Profitability

SMAR’s trailing-12-month gross profit margin of 79.19% is 62.7% higher than the industry average of 48.67x. Its trailing-12-month levered FCF margin of 25.54% is 211.5% higher than the 8.20% industry average. Also, the stock’s trailing-12-month asset turnover ratio of 0.80x compares to the 0.62x industry average.

POWR Ratings

SMAR’s outlook is apparent in its POWR Ratings. The stock has an overall rating of C, which translates to Neutral in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. SMAR has a B grade for Quality, which syncs with its higher-than-industry profitability. However, the stock also has a C grade for Stability, justified by its 60-month beta of 0.86.

SMAR is ranked #11 in the 23-stock Software - SAAS industry. Click here to access SMAR’s Growth, Momentum, Stability, and Sentiment ratings.

Bottom Line

Despite SMAR's strong financial performance and positive expectations, investors may want to consider waiting for a better entry point due to the stock's higher-than-industry valuation and insider selling actions in order to maximize prospective gains in the face of risks and market dynamics.

How Does Smartsheet Inc. (SMAR) Stack Up Against Its Peers?

While SMAR has an overall grade of C, equating to a Neutral rating, you may also check out these better A (Strong Buy) and B (Buy) rated stocks within the Software - SAAS industry: DocuSign, Inc. (DOCU), Informatica Inc. (INFA) and Vimeo, Inc. (VMEO). To explore more A-rated and B-rated Software - SAAS stocks, click here.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook > 

SMAR shares were trading at $44.86 per share on Wednesday morning, down $0.40 (-0.88%). Year-to-date, SMAR has gained 13.97%, versus a 20.65% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

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