Shares of software development company Freshworks Inc (NASDAQ: FRSH) have been on a bumpy ride over the past year, shedding 55% of their value from December through October, even as the broader market enjoyed record highs. This lagging performance was a tough pill to swallow for investors. But since late October, the tech stock has come roaring back, jumping more than 50% in just a few weeks.
This recovery rally is sparking excitement among investors and making the stock one to watch closely as we head into the final few weeks of the year. Let's jump in and take a closer look.
Bullish Fundamentals
To start, let's take a look at Freshworks' recent fundamental performance, which, based on last week's earnings report, is nothing short of impressive. The company smashed expectations last week, easily beating analyst forecasts on both revenue and earnings.
Not only did Freshworks deliver a surprise profit for its non-GAAP EPS, but it also landed a record revenue print, which was driven by 20% year-over-year growth. This is especially noteworthy given Freshworks' stock was trading at all-time lows just a couple of weeks ago, and helps explain the stock's reaction in the days since the earnings release.
Beyond the headline numbers, management raised its forward guidance, which is one of the strongest signals they can send to the market. Coupled with the record revenue print, investors should be seeing further gains heading into the rest of the year as the stock begins to recover from its downtrend.
Bullish Analyst Updates
Given the strength of the report, it's no surprise that there have been several bullish updates from analysts. The teams over at JPMorgan & Chase, as well as JMP Securities, Canaccord Genuity, and Piper Sandler, all rated the stock either Buy or Overweight in the aftermath of the report.
The price targets from these firms reached as high as $24, suggesting there's another 50% upside to be had from where the stock closed on Tuesday—not bad considering the stock has already logged a 50% rally in the past fortnight.
Potential Concerns
It is worth noting that not all analysts are buying into the huge upside, for now at least. The likes of Wells Fargo and Robert Baird have both given Freshworks stock a Neutral or Equal Weight rating in the past week, and the stock is already trading above their respective price targets of $14 and $15.
This suggests they think the stock is fairly valued right now in light of the big update, and they're waiting to see additional signs of recovery before leaning into further upside.
Another factor to consider is the stock's technicals, specifically its Relative Strength Index (RSI), which currently sits at a frothy 84. The RSI is a measure of momentum that indicates if a stock is overbought or oversold, with readings above 70 suggesting it's extremely overbought and due for a pullback.
However, given how the exceedingly bullish outlook painted by both Freshworks' revenue growth and management's guidance, we're inclined to say any short-term profit-taking will also create a golden entry opportunity for investors on the sidelines.
Getting Involved
Looking ahead into 2025, investors should see the stock continue its upward trend, especially if Freshworks can maintain the strong growth trajectory shown in its recent earnings report. The broader market environment also provides a supportive backdrop, with the S&P 500 reaching fresh highs and the Fed's rate cuts encouraging a solid risk-on sentiment that is favorable for growth stocks like Freshworks.
While there may be some caution required due to the size of recent gains, the recently uncovered longer-term upside potential is just too good to ignore.
