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Is This Enterprise AI Stock a Good Buy?

Enterprise Cloud Data Management leader Informatica (INFA) aims to capitalize on the growing demand for artificial intelligence (AI) driven platforms across industries through various strategic partnerships. However, given the increasing competition and evolving consumer demand, can INFA maintain its market standing? Let’s find out.

Headquartered in Redwood City, Informatica Inc. (INFA), California, develops an artificial intelligence-powered platform that connects, manages, and unifies data across multi-cloud, hybrid systems at an enterprise scale in the United States. The company's program includes a suite of interoperable data management products, including data integration products to ingest, transform, and integrate data. The stock has gained 4.8% over the past month.

Recently, INFA expanded its partnership with Snowflake, leading to deeper product integrations for data governance, acceleration and scaling of joint marketing and demand-generation activities, and expanded field sales collaboration. Also, INFA Launched the Informatica Intelligent Multi-domain Master Data Management (MDM) for enterprises to connect, understand and manage the relationship between various domains such as location, customer, product, or supplier as well as assets, including IoT devices or sensors. According to Holger Mueller of Constellation Research Inc, “Strong demand for its products will fuel growth for Informatica going forward, and it should be able to accelerate this growth over the next full year.”

Here's what could shape INFA's performance in the near term:

Industry Tailwinds

The enterprise artificial intelligence market is primarily driven by improved productivity, diversified application areas, increased customer satisfaction, and big data integration. Also, rapid urbanization, technological advancement, and demand for cloud applications are expected to fuel the demand for AI technologies in developing economies. The global enterprise AI market is projected to reach $9880.4 million by 2028, registering a CAGR of 51.1%. So, INFA should benefit significantly.

Latest Developments

Recently, INFA announced improvements to its Global Channel Partner Program designed to enhance partner profitability, advance certifications, and provide more options for growth. INFA's three primary initiatives accelerate partner momentum and allow partners to sell better support and deliver successful cloud modernizations to our joint customers: Growth Incentives to Accelerate Earnings, Advanced certifications to expand partner capabilities, and Channel rewards.

Last month INFA announced the Intelligent Data Management Cloud (IDMC) for Healthcare and Life Sciences with new cloud-first, cloud-native abilities designed to develop digital-first experiences for connected patient care. IDMC for Healthcare and Life Sciences is the industry's first cloud-neutral, AI-powered data management platform with the ability to ingest, manage and govern data in a hybrid, multi-cloud environment.

Also, last month INFA, at its annual conference, Informatica World, announced key product innovations developed to aid customers in maximizing their investments in end-to-end data management, AI-powered data analytics, data governance, and application integration. Every year, the company announces important innovations at Informatica World to address customers' needs, help them make the most of their data, and stay competitive.

Robust Financials

For the first quarter ending March 31, 2022, INFA’s total revenues increased 8.6% year-over-year to $362.35 million. Its non-GAAP income from operations grew 0.5% from its prior-year quarter to $83.39 million, while its Non-GAAP net income improved 14.8% from the year-ago value to $57.90 million. The company’s Non-GAAP EPS came in at $0.20.

Strong Profitability

INFA’s 81.4% trailing-12-month gross profit margin is 50.4% higher than the industry average of 61.5%. Also, its trailing-12-month Levered FCF and EBITDA margins are 22.5% and 114.9% higher than the respective industry averages.

Impressive Growth Prospects

Street expects INFA’s revenues to rise 12.1% in the next quarter and 12.8% next year. Its EPS is expected to grow 28.2% year-over-year $0.26 in the fourth quarter ending December 2022. In addition, INFA’s EPS is expected to rise at an 18.6% CAGR over the next five years.

Consensus Rating and Price Target Indicate Potential Upside

Each of the six Wall Street analysts that rated INFA rated it Buy. The 12-month median price target of $30.67 indicates a 65.6% potential upside. The price targets range from a low of $24.00 to a high of $40.00.

POWR Ratings Reflect Solid Prospects

INFA has an overall B grade, which equates to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system evaluates each stock based on eight distinct categories. INFA has a B grade for Growth and Sentiment. INFA’s promising financial performance is consistent with the Growth grade. The consensus estimates and the average price target justify the Sentiment grade.

Among the 23 stocks in the Software - SAAS industry, INFA is ranked #2.

Beyond what I stated above, we have graded INFA for Quality, Stability, Value, and Momentum. Get all INFA ratings here.

Bottom Line

INFA has shown remarkable performance in the first quarter and is expected to witness solid growth given the company’s extended partnership along with enhancements in the products and services. Moreover, given the company’s robust profitability and impressive growth prospects, we think it could be a solid addition to one’s portfolio.

How Does Informatica Inc. (INFA) Stack Up Against its Peers?

INFA has an overall POWR Rating of B, equating to a Buy. Check out these other stocks within the Software - SAAS industry with B (Buy) ratings: The Sage Group plc (SGPYY), MiX Telematics Ltd. ADR (MIXT), and Descartes Systems Group Inc. (DSGX).

INFA shares were trading at $18.00 per share on Monday afternoon, down $0.52 (-2.81%). Year-to-date, INFA has declined -51.33%, versus a -19.54% rise in the benchmark S&P 500 index during the same period.

About the Author: Spandan Khandelwal

Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.


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