Should you buy Semrush stock?
- 5 months ago
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Semrush is an online visibility platform. Its software helps businesses find customers online, primarily through social media marketing and search engine optimization tools.
Semrush also counts some big corporate customers including IBM, Proctor and Gamble, Samsung, Tesla and Walmart.
At today’s share price, Semrush has a market cap just under 1.2 billion. With 247 million in cash and little debt the enterprise value is roughly 926 million.
Revenue over the last 12 months is 239 million and net income is negative 24 million. So, Semrush is trading at 3.9 times revenue or 4.9 times gross profit.
A key risk to owning Semrush stock is the level of competition in the industry. As a result, Semrush spends more than 40% of its revenue on sales and marketing which explains why the company is not yet turning a consistent profit.
Another key risk is Semrush’s reliance on search engines. Search engines like Google could impact Semrush in a number of ways.
First, search engine data may become less valuable or harder to capture. Second, Google could provide its own free tools that make Semrush products obsolete..
However, Google is unlikely to create a product that completely nullifies Semrush’s suite of tools. The flagship Semrush product is both powerful and simple to use.
Semrush also boasts some compelling key metrics such as gross margins of 78% and a net revenue retention rate of 122%. Revenue has been growing around 30% a year, and stock based compensation makes up just 2.5% of revenue which is a breath of fresh air compared with other tech stocks.
Let’s assume that Semrush can grow revenues 15% per year for the next 10 years and let's say the company manages to hit its target for a 20% net income margin. That would put net income in 10 years time at 220 million and a 20 times multiple puts the market cap at around 4.4 billion. That works out to an investment return of just over 14% per annum.
That estimate doesn’t seem like a huge hurdle to climb. Semrush has a history of growth and is already forecast to grow 35% next year.
The internet is an increasingly crowded place for small businesses so tools like Semrush should continue to see demand.
That’s why I give Semrush a bullish rating and I do own shares in the stock. But these are my personal opinions, not financial advice.
Semrush is an online visibility platform. Its software helps businesses find customers online, primarily through social media marketing and search engine optimization tools.
Semrush also counts some big corporate customers including IBM, Proctor and Gamble, Samsung, Tesla and Walmart.
At today’s share price, Semrush has a market cap just under 1.2 billion. With 247 million in cash and little debt the enterprise value is roughly 926 million.
Revenue over the last 12 months is 239 million and net income is negative 24 million. So, Semrush is trading at 3.9 times revenue or 4.9 times gross profit.
A key risk to owning Semrush stock is the level of competition in the industry. As a result, Semrush spends more than 40% of its revenue on sales and marketing which explains why the company is not yet turning a consistent profit.
Another key risk is Semrush’s reliance on search engines. Search engines like Google could impact Semrush in a number of ways.
First, search engine data may become less valuable or harder to capture. Second, Google could provide its own free tools that make Semrush products obsolete..
However, Google is unlikely to create a product that completely nullifies Semrush’s suite of tools. The flagship Semrush product is both powerful and simple to use.
Semrush also boasts some compelling key metrics such as gross margins of 78% and a net revenue retention rate of 122%. Revenue has been growing around 30% a year, and stock based compensation makes up just 2.5% of revenue which is a breath of fresh air compared with other tech stocks.
Let’s assume that Semrush can grow revenues 15% per year for the next 10 years and let's say the company manages to hit its target for a 20% net income margin. That would put net income in 10 years time at 220 million and a 20 times multiple puts the market cap at around 4.4 billion. That works out to an investment return of just over 14% per annum.
That estimate doesn’t seem like a huge hurdle to climb. Semrush has a history of growth and is already forecast to grow 35% next year.
The internet is an increasingly crowded place for small businesses so tools like Semrush should continue to see demand.
That’s why I give Semrush a bullish rating and I do own shares in the stock. But these are my personal opinions, not financial advice.