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Missed Out on Salesforce? My Best Enterprise Software Stock to Buy and Hold

Occasionally, a stock comes along that can change your life. Salesforce.com was a small tech stock in the early 2000s, but it has grown into a $200 billion giant. A $10,000 investment at its IPO would be worth about $800,000 dollars today.

It's unlikely Salesforce will appreciate another 80 times going forward, but fellow enterprise software company Monday.com (NASDAQ: MNDY) might be able to follow in its footsteps. There is a ton to like about this rapidly growing company, and it's still small enough to generate life-changing returns over the long term. Here's why.

Reinventing how people work

Many companies still operate with people across various departments using tons of different software tools and programs. As a result, collaboration between teams often involves a lot of inefficiency as they struggle to bring their systems together and communicate effectively.

Image source: Getty Images.

Monday.com tackles this problem by offering a software-as-a-service (SaaS) platform that allows customers to create a customized operating system for their workplace. On Monday.com, employers can create workflows and project management systems built specifically to their needs, automate simple tasks, and integrate data from other programs into it. A simple-to-use interface with little or no code means users can drag and drop, use templates, and take advantage of the platform with minimal technical experience.

It's a cloud-based platform, so it can scale within an organization. Ultimately, Monday.com is trying to make workplace systems easy and flexible by becoming a company's "command center."

Growing like wildfire

You only need to look at its growth to see evidence that its products resonate with businesses. Monday.com launched in 2014 and reached $11 million in annual revenue by 2017. That figure surged to $161 million by 2020, and management is guiding for full-year 2021 revenue of about $300 million, good for 86% growth.

Its ability to acquire customers and encourage them to spend more over time fuels its robust revenue growth. Monday.com offers a free tier of its platform for up to two users. This is great for an IT employee who is curious about the product and wants to experiment with it. Monday.com's paid tiers then go up in price as more features are unlocked, enabling the software to spread through a company and become increasingly "mission critical." For customers with at least 10 users, Monday.com reported a 130% net dollar retention rate in the latest quarter.

This is showing up in Monday.com's rapid growth of enterprise customers too -- the number of companies contributing $50,000 or more in annual recurring revenue is at 613 as of the third quarter, a 231% year-over-year increase.

Not a bargain but small enough to win big

The market has held SaaS stocks in high regard for years now, and Monday.com's rapid revenue growth earned it a sky-high valuation when it went public in June, peaking at a price-to-sales ratio above 60. It's hard to realize truly spectacular returns when a stock is that expensive, because so much future success is already baked into the share price.

Data by YCharts.

That's why the marketwide sell-off among many technology stocks presents an opportunity for long-term investors. Monday.com's P/S ratio has fallen below 30. To be clear, this is still a pricey stock, but at its cheapest valuation since the IPO, I believe such strong fundamentals make it a stock worth slowly building a position in. The stock's market cap is just below $9 billion, and comparing it to leading SaaS providers like Salesforce, it's clear the long-term upside is substantial as Monday.com executes on its growth initiatives over the next decade.

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Justin Pope owns monday.com Ltd. The Motley Fool owns and recommends Salesforce.com and monday.com Ltd. The Motley Fool has a disclosure policy.


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