MongoDB (NASDAQ: MDB) stock has experienced considerable volatility this year. The next-generation database company's market cap has fallen by nearly half from where it peaked on Feb. 9 as slowing sales growth led investors to question its valuation.
Still, that lower share price gives investors reason to take another look at its value proposition, and the stock has twice bounced off of recent lows. Should investors begin to buy shares of this SaaS stock again, or should they stay away?
The state of MongoDB
MongoDB provides an essential and long-overdue update to database technology: non-relational databases. Relational databases, like the ones first popularized by Oracle decades ago, contain rows and columns, storing specific data types in each cell.
MongoDB's database, Atlas, specializes in storing data that does not fit into defined structures. Video files, tweets, and stock market tickers are examples of data types needing this non-relational approach, making MongoDB's database increasingly critical to managing the data needs of today.
Though its stock price has dropped, its customer growth continues. In its fiscal 2025 first quarter, which ended April 30, its base of customers grew 14% year over year to 49,200, and the number of customers spending over $100,000 with it annually rose by 21%.
So what went wrong?
At first glance, that type of growth does not seem like something that would deter investors, especially since its financials appeared to reflect the increases. In fiscal Q1, revenue rose 22% year over year to $451 million.
Still, its net losses widened. In fiscal Q1, MongoDB lost $81 million, compared to $54 million in the same quarter in fiscal 2024. The wider losses occurred mainly because the $426 million the company spent on operating expenses alone was barely below its total revenue.
Its $121 million in stock-based compensation costs, a non-cash expense, also contributed to the financial pain. Even with $61 million in free cash flow, such costs may lead investors to question the company's strategy of offering stock to retain employees.
Additionally, MongoDB's previously lofty valuation arguably priced the stock for perfection. Its price-to-sales (P/S) ratio, which is now at 10, briefly topped 20 in February and was in the mid-teens before the most recent quarterly report. Given that, it was understandable that a less-than-perfect earnings report took a toll on the stock price.
MongoDB stock today
The question for investors now is whether they should buy MongoDB stock ahead of its next earnings report. The lower stock price does make the argument for buying appear stronger.
Analysts' consensus estimate is for fiscal Q2 2025 revenue to rise by 9% to $464 million. Admittedly, revenue grew by 40% in the second quarter of fiscal 2024, so much of the optimism over MongoDB has disappeared.
However, those same analysts believe revenue will grow by 13% over the course of the year before rising by 17% in fiscal 2026.
Moreover, the stock, priced at around $250 per share as of the time of this writing, has bounced off a 52-week low of around $213 per share. While its valuation is not cheap, its price-to-sales ratio is close to multiyear lows, which could be a sign that MongoDB stock is forming a near-term bottom.
Should I buy MongoDB stock?
MongoDB stock is probably unsuitable for more conservative investors, but given the state of the business, the case for taking a speculative position in it looks increasingly strong. Today's tech world needs ways to store non-relational data, and MongoDB can supply them.
Its revenue growth has slowed considerably, so it was probably not wrong for investors to conclude that the higher valuations of the past were no longer warranted. Nonetheless, with MongoDB's P/S ratio down to 10 and its top-line growth likely to accelerate again, this might be a good time for risk-tolerant investors to add shares.
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Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends MongoDB and Oracle. The Motley Fool has a disclosure policy.
