1 Stock Down 80% That Wall Street Expects to Rise 23% in 2024
This beaten-down stock is setting itself up to become profitable when macro conditions improve.
The S&P 500 continues its rally as we get closer to the end of the year and is up 19% in 2023. Tech stocks have also made a comeback this year after a tough 2022, with the Nasdaq-100 tech index up 52% so far.
But not all stocks are experiencing an upswing. Bill Holdings (BILL 2.32%) has seen a 35% decline in 2023 and an 80% drop from its peak. Despite this, Wall Street analysts believe it has the potential to bounce back in 2024. But does that assessment make the stock a strong buy at the moment?
Bill is a company that sells financial software packages to smaller businesses. Its services automate various financial processes such as accounts payable, receivables, and payments. Additionally, it provides data compilation for evaluation and management purposes. The company primarily caters to micro, small, and medium-sized businesses and has forged partnerships with large financial institutions to integrate its software with their systems.
Bill’s software makes it easier for smaller businesses to operate efficiently, and it currently boasts nearly 500,000 paying subscribers and almost 6 million network members who can send and receive money through its platform.
However, revenue growth has been slowing down as clients cut their budgets due to inflation pressures. While fiscal 2023 saw a 65% year-over-year increase in revenue, the growth slowed to just 33% in the first quarter of the 2024 fiscal year, which ended on September 30. The management has projected around 15% growth for the second quarter and approximately 16% for the full year.
To combat this slowdown, Bill’s management is prioritizing improving profitability. This strategic shift is crucial during a time when customers are reducing their spending. By focusing more on driving growth, the company can mitigate the effects of customer cutbacks. In the third quarter, total expenses only increased by 11%, with marketing expenses remaining flat. Meanwhile, revenue increased by 33%, leading to a decrease in operating loss from $88 million to $57 million.
Several factors make Bill an appealing long-term investment opportunity. The company boasts high gross margins that exceed 80% with scale, and its asset-light design allows for increased profitability without incurring heavy costs as more customers sign up. With a recurring revenue model, Bill enjoys reliable income streams. Additionally, the company benefits from a network effect as new clients join, and more financial institutions integrate into its ecosystem to facilitate transactions. While subscription revenue currently accounts for 20% of total revenue, transaction-based revenue represents 66%, indicating that bringing more players into the ecosystem could drive even higher growth.
With a massive addressable market of 34 million small businesses in the United States and 70 million globally, with a combined software spend of nearly $500 billion, Bill has only tapped into a fraction of its potential. As the company resolves real pain points for smaller businesses, it has ample opportunity to win clients, drive loyalty, and increase recurring revenue, ultimately achieving profitability at scale.
Looking ahead, Wall Street analysts anticipate a turnaround for Bill in 2024. The average consensus price target suggests a 23% increase over the current stock prices within the next 12 months, with the highest estimate projecting a remarkable 91% surge.
While challenging macro conditions persist, there are signs that they could be easing. The Federal Reserve’s decision to pause interest rate hikes and reports of increased spending by business customers indicate potential improvements on the horizon.
In conclusion, Bill Holdings may have experienced a significant decline in its stock price, but analysts remain bullish on its future prospects. The company’s focus on improving profitability and its compelling features, such as high gross margins, recurring revenue model, and network effect, position it for potential growth. Although uncertainties loom, the easing of macro conditions and increased spending by business customers offer a glimmer of hope for Bill’s stock to regain its footing.
Disclaimer: The above information is for informational purposes only and should not be considered as financial advice. It is important to conduct thorough research and consult with a professional investment advisor before making any investment decisions.
Sources:
– The Motley Fool
– S&P Global Market Intelligence
