Commvault Continues its Rally, Outpacing Tech Stocks, Midcaps

March 11, 2024 at 07:00 AM EDT

Commvault Systems stock price

Data backup and recovery specialist Commvault Systems Inc. (NASDAQ: CVLT) is soaring after the company topped earnings and sales views in its most recent quarter.

The post-earnings momentum has been kept alive since January 30, with Commvault stock advancing 22.49%, while the SPDR S&P MidCap 400 ETF Trust (NYSEARCA: MDY), of which Commvault is a component, has returned 7%.

With a market capitalization of $4.39 billion, Commvault is too small to be tracked in the S&P 500.

However, if you compare Commvault stock performance to other technology stocks in the Technology Select Sector SPDR Fund (NYSEARCA: XLK), you’ll see that Commvault has outpaced large-cap tech in the past three months.

Beating Wall Street Earnings, Revenue Views

MarketBeat’s Commvault Systems earnings data show net income of 78 cents a share, a nickel above Wall Street’s consensus view. Revenue of $216.81 million handily beat forecasts of $208.01 million.

That also exceeded the company’s own revenue guidance range of $206 million to $210 million.

Commvault grew earnings by 26% in the quarter and grew revenue by 11%.

On the Commvault systems chart, you’ll see that the stock is extended after its big run-up, trading 14% above its 50-day moving average, and 2.5% above its 10-day line.

At this juncture, the stock appears to be a good candidate for a possible buy when it pulls back to a short- or medium-term moving average. Buying into an extended rally is risky, as it’s easy to get shaken out on the next normal pullback.

Double-Digit Subscription & Recurring Revenue Growth

A driver of investors’ bullish response was Commvault’s subscription revenue and annual recurring revenue.

Subscription revenue came in at $114.2 million, beating the company’s expected range of $106 million to $110 million. That was a year-over-year increase of 31%. Annual recurring revenue totaled $752 million, up 17% year over year.

The growing need for data security is helping to grow Commvault’s business.

“These results reinforce that Commvault’s products and services are in more demand than ever, especially as companies grapple with how to keep their data secure, compliant, and resilient in a world increasingly under threat of cyber-attacks,” said CEO Sanjay Mirchandani in the earnings conference call.

"Most Important Pivot" In Company's History

Rather than just looking at prevention, he added, companies are now putting a heavy emphasis on recovery and resilience.

“This transition has fueled the most important pivot in our 27-year history,” he said, adding that the company’s new cloud-based products allow data to be restored “from anywhere to anywhere, rapidly, reliably, and at massive scale. The platform provides AI capabilities, giving customers automated and predictive recovery, threat intelligence, and operational efficiencies to deliver true cyber resilience.”

Commvault guided toward current-quarter revenue in a range between $210 million and $214 million, ahead of analysts’ views.

Returning Capital Through Share Buybacks

Commvault offers no dividend, as is common among fast-growing tech stocks, but the company returns capital to shareholders through buybacks. It repurchased $51.3 million of stock in the fourth quarter.

MarketBeat’s Commvault analyst forecasts show a consensus view of “moderate buy,” with the current price target of $85.60 indicating that a pullback may be in sight. That’s why it’s not a good idea to buy a stock immediately after a run-up of 10% or more.

Because Commvault is a mid-cap, with just 43.2 million shares in float, there’s not as much analyst coverage as you find in bigger techs.

However, analysts from boutique research shop Refinitiv give the stock an earnings rating of 9 out of 10, which it calls “significantly more bullish” than the overall software industry’s rating of 6.9.

Average Price Movement Correlation with Broad Market

When it comes to Commvault stock’s behavior versus the broader market, Refinitiv said on days when the market is up, Commvault tends to lag the S&P 500 index. “On days when the market is down, the stock generally performs in line with the index.”

Commvault has a beta of .90, indicating that the stock is theoretically 10% less volatile than the overall market, making it moderately less risky.

Refinitiv noted an average correlation with the broader market, but pointed out that over the past 90 days, a time period that includes the post-earnings run-up, Commvault shares have been more volatile than the broader market, “as the stock’s daily price fluctuations have exceeded that of 63% of S&P 500 index firms.”

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