Morgan Stanley: Smartsheet's Valuation 'Doesn't Reflect Long Runway Of Growth, Ramping Profitability'

Shares of Smartsheet Inc (NYSE:SMAR) earned the top-notch rating from Morgan Stanley following the expiry of the IPO quiet period.

The Analyst

Analyst Stan Zlotsky initiated coverage of Smartsheet with an Overweight rating and a $24 price target, suggesting 20 percent upside from current levels.

The Thesis

Smartsheet's valuation doesn't reflect the "long runway of growth and ramping profitability," suggested by the $20 billion total addressable market opportunity, Zlotsky said in a Tuesday note. The current penetration is at a mere 1 percent.

"The company's highly flexible, low-code platform supports more than 2,000 documented use cases to manage the ~60% of all corporate work that is not structured," Zlotsky said.

The analyst sees strong penetration for Smartsheet, which has 92,000 customers, 3.6 million users and generates 480 percent return on investment.

Morgan Stanley said the company's valuation relative to its SaaS peers underestimates the sustainability of growth, the efficiency of the business model and conservative forward estimates.

The company's competitive differentiation, relative to traditional vendors in project management, and limited direct competition from other collaboration vendors can help sustain a 22 percent revenue CAGR over the 15-year horizon, the firm said.

The Price Action

Smartsheet shares, which saw a 30-percent gain on their debut, traded around $20.52 on Tuesday afternoon.

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