Although Samsara (currently trading at $39.20 per share) has gained 16.5% over the last six months, it has trailed the S&P 500’s 32.7% return during that period. This may have investors wondering how to approach the situation.
Taking into account the weaker price action, does IOT warrant a spot on your radar, or is it better left off your list? Find out in our full research report, it’s free for active Edge members.
Why Is IOT a Good Business?
From sensors on vehicles to AI-powered cameras that help prevent accidents, Samsara (NYSE: IOT) is a cloud-based Internet of Things platform that helps businesses improve the safety, efficiency, and sustainability of their physical operations.
1. ARR Surges as Recurring Revenue Flows In
While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.
Samsara’s ARR punched in at $1.64 billion in Q2, and over the last four quarters, its year-on-year growth averaged 31.8%. This performance was fantastic and shows that customers are willing to take multi-year bets on the company’s technology. Its growth also makes Samsara a more predictable business, a tailwind for its valuation as investors typically prefer businesses with recurring revenue. 
2. Projected Revenue Growth Is Remarkable
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite, though some deceleration is natural as businesses become larger.
Over the next 12 months, sell-side analysts expect Samsara’s revenue to rise by 21.2%. While this projection is below its 35.2% annualized growth rate for the past two years, it is admirable and indicates the market is forecasting success for its products and services.
3. Customer Acquisition Costs Are Recovered in Record Time
The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.
Samsara is very efficient at acquiring new customers, and its CAC payback period checked in at 26.6 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a highly differentiated product offering and a strong brand reputation. These dynamics give Samsara more resources to pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments. 
Final Judgment
These are just a few reasons why Samsara ranks near the top of our list. With its shares lagging the market recently, the stock trades at 12.9× forward price-to-sales (or $39.20 per share). Is now the right time to buy? See for yourself in our full research report, it’s free for active Edge members.
Stocks We Like Even More Than Samsara
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