MDLA: Medallia: Buy, Sell, or Hold?

Shares of Software-as-a-Service (SaaS) company Medallia, Inc. (MDLA) have declined 33.7% over the past month due to widening losses it reported in its fiscal fourth quarter ended January 31, 2021.

The company’s loss from operations have increased 225.6% year-over-year to $41.2 million. Its loss per share increased 228% to 32 cents per share. Furthermore, the company expects its EPS to remain negative in fiscal 2022, while its loss from operations is expected to be around $22 million. MDLA has declined 12.3% year-to-date, following 46.8% gains over the past year.

Click here to check out our Software Industry Report for 2021

Here’s what we think could shape MDLA’s performance in 2021:

Poor Financials

MDLA has generated $477.22 million in revenues over the past year. Its trailing-12-month gross profits were $307.36 million. However, the company’s ebitda, net income and EPS are all negative. Moreover, MDLA’s EPS has declined 23.8% year-over-year.

While the company’s $683.3 million trailing-12-month cash balance seems impressive, the company’s current assets are significantly higher than its total debt. Also, its current and quick ratios of 2.37 and 2.23, respectively, indicate suboptimal utilization of resources.

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In terms of forward ev/ebitda, MDLA is currently trading at 349.10x, significantly higher than the industry average 16.51x. Its forward price/sales ratio of 7.76 is 90.4% higher than the industry average 4.07.

In addition, MDLA’s trailing-12-month price/cash flow of 2651.97x is significantly higher than the industry average 22.63x.

Unfavorable POWR Ratings

MDLA has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

MDLA has a D grade for Sentiment and Quality, and C for Value. This is justified, given the company’s weak profitability, unfavorable analyst outlook and skyrocketing valuation.

Of the 61 stocks in the C-rated Software – Business industry, MDLA is ranked #53. You can check out additional MDLA ratings for Stability, Growth and Momentum here.

There are 20 stocks in the Software – Business industry with an overall rating of A or B. Click here to view them.

Bottom Line

MDLA is currently trading below its 50-day and 200-day moving averages of $40.43 and $34.31, respectively, indicating short-term bearishness. In addition, to the negative outlook released by the company’s board of directors, the recent slump in tech stocks is contributing to MDLA’s decline.

Corporate insiders have sold approximately $5.10 million of MDLA shares over the past three months. And the number of investor portfolios holding MDLA has declined 6% over the past 30 days, indicating ‘Very Negative’ investor sentiment. Given these developments, the stock is best avoided now.

Click here to check out our Software Industry Report for 2021

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MDLA shares were trading at $28.77 per share on Wednesday afternoon, down $0.35 (-1.20%). Year-to-date, MDLA has declined -13.40%, versus a 5.46% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...