What happened
Shares of Sumo Logic (NASDAQ: SUMO) jumped as much as 12.5% on Tuesday after the company reported better than expected quarterly results. As of 3:04 p.m. ET, the stock was up 9.6% on the day.
So what
After the close yesterday, Sumo Logic released its financial results for the third quarter, which ended in October. Revenue was $62 million in the period, up 20% year over year, beating the consensus estimate of $60.85 million. The company is still highly unprofitable, with a net loss of $30.8 million in the quarter and negative free cash flow of $13.2 million.
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For the full year, Sumo Logic expects revenue of approximately $239 million, which would be 18% growth over 2020. The company, which operates a continuous intelligence platform that helps companies manage their internal and external digital applications, just went public a little over a year ago. It counts large companies like The Pokémon Company, Samsung, and Grammarly as customers.
Now what
Sumo Logic has a market cap of $1.66 billion. Based on its full-year revenue guidance, the stock trades at a price-to-sales ratio (P/S) of around 7. Given the company's high gross margin of 67%, this could be a fair valuation if you believe the business can continue growing at a double-digit rate and eventually turn toward positive profit margins. If you don't, or have no knowledge of Sumo Logic's industry or business model, it is best to stay away from this small-cap technology company as a potential investment.
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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
