Over the past six months, Samsara’s stock price fell to $29.58. Shareholders have lost 18.5% of their capital, which is disappointing considering the S&P 500 has climbed by 13.3%. This might have investors contemplating their next move.
Following the pullback, is now a good time to buy IOT? Find out in our full research report, it’s free.
Why Are We Positive On IOT?
From sensors on vehicles to AI-powered cameras that help prevent accidents, Samsara (NYSE: IOT) is a cloud-based Internet of Things platform that helps businesses improve the safety, efficiency, and sustainability of their physical operations.
1. ARR Surges as Recurring Revenue Flows In
While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.
Samsara’s ARR punched in at $1.89 billion in Q4, and over the last four quarters, its year-on-year growth averaged 29.8%. This performance was fantastic and shows that customers are willing to take multi-year bets on the company’s technology. Its growth also makes Samsara a more predictable business, a tailwind for its valuation as investors typically prefer businesses with recurring revenue. 
2. Projected Revenue Growth Is Remarkable
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite, though some deceleration is natural as businesses become larger.
Over the next 12 months, sell-side analysts expect Samsara’s revenue to rise by 21.8%. While this projection is below its 31.4% annualized growth rate for the past two years, it is noteworthy and indicates the market is forecasting success for its products and services.
3. Customer Acquisition Costs Are Recovered in Record Time
The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.
Samsara is very efficient at acquiring new customers, and its CAC payback period checked in at 26.5 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a highly differentiated product offering and a strong brand reputation. These dynamics give Samsara more resources to pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments. 
Final Judgment
These are just a few reasons why Samsara is a cream-of-the-crop software company. After the recent drawdown, the stock trades at 8.3× forward price-to-sales (or $29.58 per share). Is now a good time to initiate a position? See for yourself in our full research report, it’s free.
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