The 17% drop from February’s peak, through the middle of last week might well have been a fair warning to investors of Braze, Inc (NASDAQ: BRZE), ahead of the company’s earnings last Wednesday. The customer engagement platform had been rallying all the way from the end of 2022 through the first few weeks of February, and while it still had a long way to go to get back to 2021’s post-IPO high of around $98, the multi-year rally was looking stronger than ever.
However, as can often happen on Wall Street, any weakness ahead of a big event, like an earnings release, can send investors to the door before anything is confirmed. What’s interesting in the case of Braze, and what’s making us ask if there’s a potential opportunity here, is that the company managed to deliver a solid beat on analyst expectations. This was the case for both topline revenue and bottom-line earnings, the former showing year-on-year growth of more than 32% and the latter just shy of showing a profit.
Anyone who was hoping for this to confirm the selloff from the previous four weeks had been a misunderstanding, however, was disappointed. There were signs that customer growth was slowing, which fed into management’s decision to offer forward guidance that was softer than expected.
Devil In The Details
If nothing else, Wall Street is forward-looking. It’s always happy to see a stock report strong performance from past quarters, but what it really wants to see is bullish guidance for the coming quarters. So with the negative part of the report having been quickly digested, it wasn’t a surprise to see shares selloff in the aftermath.
With them having already shed 17% of their value coming into the release, they fell a further 19% through Tuesday morning, making for a combined 33% drop from February’s peak. However, for those of us on the sidelines, this has all the makings of an overreaction, and there are several reasons to think the weakness is temporary.
Consider, for example, that at $131 million, it was the company’s highest revenue print ever. At the same time, their operating income improved in the last quarter, while it was their best EPS print since going public.
There’s also the fact that from the previous week to last week’s release, the team at UBS was upgrading the stock on the back of its long-term potential. Having previously had Braze stock rated Neutral, they upped it to a full Buy while boosting their price target to $62. With all the selling in the meantime, this is now pointing to an upside of almost 50%.
Bullish Analyst Upgrades
Sure, UBS might have overestimated the company’s growth prospects and been caught by surprise by the soft guidance, but even since the release, we’ve seen a ton of other analysts joining the bull’s corner. Needham, Piper Sandler, TD Cowen, and Raymond James are just a handful of those who’ve reiterated their Buy ratings on Braze stock since last week’s release. In terms of refreshed price targets, three are at $65, which is even higher than UBS’, calculated before the update.
All this lends itself to the argument that the post-earnings selloff in Braze shares is an overreaction, and shares could soon be due for a pullback. From the technical side of things, it’s worth noting that at 24, the stock’s relative strength index (RSI) is heavily extended and points to extremely oversold conditions. This can be one of the most reliable indicators when it comes to a stock’s short-term outlook and suggests the current bout of selling could soon run out of momentum.
Coupled with so many analysts calling for at least a 50% upside in the medium to longer term, you can’t help but feel this could be one of the great entry opportunities of the year.
