Docebo Is Down 40%, So Is the Stock a Good Buy Now?
Last month, the Bureau of Labor Statistics announced that the United States Consumer Price Index rose 2.7% in July, which was lower than analysts’ expectations of 2.8%. Easing inflation appears to have raised hopes of interest rate cuts, thereby driving global equity markets higher despite concerns over the tariff war. Amid rising investor confidence, the S&P/TSX Composite Index has increased by 17.6% this year.
However, Docebo (TSX:DCBO) has underperformed the broader equity markets, losing 41.6% of its stock value compared to its 52-week high. The departure of key executives and expectations of growth slowing down amid rising competition have made investors skeptical, leading to a sell-off. Amid the steep correction, let’s examine its recently reported second-quarter performance and growth prospects to determine potential buying opportunities in the stock at these discounted prices.
Docebo’s second-quarter performance
Last month, Docebo reported a healthy second-quarter performance, beating its revenue and profitability guidance. Its topline came in at $60.7 million, which was higher than management’s guidance of $59–$59.2 million. Year-over-year, its revenue grew 14.5% driven by an increase in both its subscription revenue and professional services. The company has expanded its customer base with the addition of new customers, while increasing its average customer value by 11.5% to $58,900.
Amid topline growth and expansion of the gross profit margin by 20 basis points, its gross profits increased by 14.8%. Meanwhile, its operating expenses rose 17.6% year-over-year to $45 million. The increase in general and administrative, sales and marketing, depreciation and amortization, and research and development expenses led to a rise in its operating costs, thereby bringing its operating income down by 8.5%. Additionally, its net income was $3.8 million, or $0.10/share, representing a 33.3% decline from the previous year’s quarter.
However, removing special items, its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) has increased by 15% to $9.2 million. It also generated free cash flow of $11.4 million during the quarter and ended the second quarter with cash and cash equivalents of $64.6 million. Therefore, the company is well-positioned to fund its growth prospects.
Docebo’s growth prospects
Businesses are adopting LMS (learning management systems) to provide remote training and skill development for their employees. Also, the advancements in artificial intelligence (AI) and analytics have enhanced LMS capabilities, thereby supporting its adoption. Meanwhile, Grand View Research predicts that the global LMS market will grow at a 19.9% CAGR (compound annual growth rate) until 2030.
Facing an expanding addressable market and rising competition, Docebo continues to invest in artificial intelligence (AI) to develop innovative products to add new customers and grow its market share. Further, most of its customers have signed multi-year agreements, which provide stability to its financials. Meanwhile, the company’s management expects its topline in 2025 to grow by 10–11%. The management also expects its adjusted EBITDA as a percentage of total revenue to come in the range of 17–18%, representing a substantial improvement from 15.5% in 2024. Therefore, its growth prospects look healthy.
Investors’ takeaway
The steep correction has dragged Docebo’s valuation down to reasonable levels, with the company currently trading at NTM (next 12 months) price-to-sales and NTM price-to-earnings multiples of 3.7 and 22.5, respectively. Considering its healthy growth prospects and discounted stock price, I believe investors with a three-year investment horizon could start accumulating the stock despite its near-term weakness.
