One Wall Street analyst sees 26% upside for Confluent stock

Mizuho Bank(Mizuho)The analysts of theConfluent (NASDAQ resonance code: CFLT)The company has become a little less optimistic. On Monday, they cut their price target on the data streaming company to $36 from $38. However, the new price target still leaves 26% of potential upside from the previous price, and Mizuho maintains a Buy rating on the stock.

Mixed feelings.

Confluent is focused on helping organizations handle complex data streaming workloads using Apache Kafka, a popular open source platform. While any company can install and run Kafka, running this complex software is not an easy task.

Mizuho sees strong demand for Confluent's Togun Cloud Kafka platform, especially in cybersecurity and artificial intelligence. Mizuho also believes that the big cost optimization that enterprise customers have been undergoing is now complete, which should ease pressure on Confluent's top line. Confluent's revenue growth has been slowing in recent quarters, and management said it expects growth of just 21% in the first quarter of 2024.

On the other side of the coin, Mizuho pointed out that some deals are being pushed out and the growth of new clients is being challenged. In addition, according to analysts, demand from the U.S. public sector appears to be weak. While Mizuho remains bullish on Confluent, it has lowered its expectations.

Is Confluent stock worth buying?

As the company's growth rate slows, its bottom line should get more attention from investors, which is not a good thing. This is not a good thing. In 2023, Confluent had a net loss of $443 million on revenue of $777 million. Its sales and marketing expenses as a percentage of revenue are a whopping 65%.

Although the company generated positive free cash flow in the fourth quarter, it reported a free cash flow loss of $124 million for the year. While the company's revenues are growing rapidly, although the pace of growth is slower than in the past, the cost of realizing that growth is high.

Confluent has more than 11 times annualized sales and investors should think twice before investing in this high-priced stock.

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Timothy Green does not own any of the shares listed above.The Motley Fool holds a recommendation for Confluent.The Motley Fool has a disclosure policy.

A Wall Street Analyst Says Confluent Stock Has 26% of Upside was originally published by The Motley Fool.