Should you buy Semrush stock?

For more detailed investing ideas visit our website: https://www.overlookedalpha.com<br /><br />Semrush is an online visibility platform. Its software helps businesses find customers online, primarily through social media marketing and search engine optimization tools. <br /><br />Semrush also counts some big corporate customers including IBM, Proctor and Gamble, Samsung, Tesla and Walmart. <br /><br />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. <br /><br />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.<br /><br />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. <br /><br />Another key risk is Semrush’s reliance on search engines. Search engines like Google could impact Semrush in a number of ways. <br /><br />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..<br /><br />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. <br /><br />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. <br /><br />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. <br /><br />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. <br /><br />The internet is an increasingly crowded place for small businesses so tools like Semrush should continue to see demand.<br /><br />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.