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Monday.com Is A Solid Short

Galatians Chapter 3 verse 28 states, "There is neither Jew nor Gentile, neither slave nor free, nor is there male and female, for you are all one in Christ Jesus."


The Bible clearly states that every person is created in His image, and while many pursue the meaning of life, it is also clear that my purpose in life is to glorify God as the creator of everything imaginable. God loves me more than I can imagine as well, so as part of His creation, He has given me my life and freedom, and every positive aspects of life's joy.


For investing, I am always focused on valuation. Regardless of whether one desires to short the market, or to go long, valuation is always a critical variable at the forefront. With the increase in technology and innovation, valuation has become a very difficult discussion topic for many, and in some cases, has even been considered to no longer be relevant. Like my purpose in life to glorify God, valuation will always remain the single most important variable in the equation.


I don't short stocks, never have, never will. But I do perform rigorous fundamental analysis including a company's historical, present, and future forecast information. While financial modeling is never perfect, there are always conservative/aggressive scenarios to attempt to illustrate investment potential.


I remain in the process of constructing a comprehensive IPO database for companies that have gone public recently. I am hoping to get out a consistent weekly updated IPO Dog List, but as this is still in development, I thought I would kick things off with Monday.com Ltd. (MNDY).

Monday has had a phenomenal run from its initial IPO day back in early June. From the IPO day's low of $155 per share, the Stock Price, SP is now up 130% in less than three months. With the company trading just below 70 times EV/Revenue and not generating positive Cash Flow, I feel that Monday is essentially trading at a valuation today, of where it should be in five years.


To get a sense of why I feel Monday is so overvalued requires considering the company's Revenue from the last fiscal year, the last twelve months, LTMs, and the five year forecast. The short is that Monday generated $161 million in Revenue for 2020, has currently generated $222 million over the LTM, and is forecast to generate $1 billion in Revenue by 2025, which in my opinion is an aggressive forecast.


The more important part of Monday's performance is Cash Flow. The company currently doesn't generate positive Operating or Free Cash Flow, OCF/FCF, but I do suspect that it will be doing so shortly. When it comes to the five year forecast, I am modeling Monday to generate a 25% OCF margin.


Putting it all together, Monday is poised to be generated around $1 billion in Revenue and $250 million or so for OCF equating to an OCF/share at $4.54. Today, Monday's SP stands at $357 per share. That means Monday is trading 22 times EV/Revenue for 2025 and nearly 80 times OCF/share, five years from now.


So the question becomes, to what valuation do investors expect Monday to trade at. If the answer 30 times EV/Revenue or higher, or 150 times OCF per share, then perhaps the SP will simply keep rising towards $650 or so, but I don't think so. Growing from $161 million to $1 billion in sales, with a 25% OCF margin is a very strong trajectory. The problem is I feel that Monday is worth around $410 by 2025, reflecting a 2% annualized return per year. I simply don't believe that $1 billion in sales merits a premium too far north of 20 times EV/Revenue. This is also true as Cash Flow margins remain to be seen.


While Monday is doing well and the growth potential is robust, the company is simply too overvalued today. The IPO price very briefly was below $160 which reflected a much better risk/reward profile. Today, I believe that Monday will see selling pressure as the company inevitably doesn't beat estimates in the coming quarters directly, or by enough.


I see downside risk of 35-45% as I feel the SP could trade anywhere from $200-230 per share. There is definitely euphoria here and investors should think about how fast Monday can grow, versus what valuation makes sense. For me, Monday is an IPO dog and likely, one of the most overvalued recent IPOs out there.


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