Does Teradata storage have room for more wins after a cloud surprise?

Teradata (NYSE: TDC), a database and analytics products and service provider, saw its stock rise close to 73% over the last 5 trading days and around 92% over the last month (21 trading days). In comparison, the S&P 500 has risen by almost 3% over the last month. So what drives profits? Teradata
reported robust growth for the cloud-based version of its software in Q4 2020 earnings. Specifically, the annual recurring revenue grew – which is the annual value of all recurring contracts per. Q4 – for public-cloud-based services to $ 106 million, a solid 165% jump over the year. Teradata’s revenue and stock price have shifted sideways in recent years as the company’s local inventory model faced competition from cloud-based players to data warehousing. Now, Teradata’s strong cloud numbers indicate that it actually has a decent shot at competing in the hyper-growth cloud data warehousing market, which is likely to cause investors to reconsider their valuation. So is the stock ready for further gains?

Although investors pushed the stock up almost 100% two days after the release of earnings, it has corrected a bit from the recent highs, probably driven by some profit booking. Trefis Machine Learning Engine, which analyzes five-year stock price data, indicates that there is a good chance of a decline in the Teradata stock over the next month. See our Teradata Stock Chances of a Rise for more details.

However, when we look at peer valuations in the cloud-based data warehouse, we believe that the stock has room for more gains in the long run. For perspective, Snowflake – one of the best known stocks of cloud data warehousing – is trading at a whopping 140x expected 2021 revenue. (related: Valuation of snowflakes: Expensive or cheap?) By comparison, Teradata’s stock is still trading at less than 3x consensus 2021 revenue, even after last week’s big rally. Granted, Teradata’s cloud business accounts for less than 6% of revenue on a run basis, but growth is likely to remain strong. The company expects the public cloud ARR to increase by at least 165% year-on-year in Q1 2021 and expects to at least double ARR year-on-year in 2021. [1] Given the large difference in valuations between Teradata and its cloud-first rivals, the large and growing cloud data warehousing market and Teradata’s strong recent performance, the stock could have room for further gains in the long run.

While the Teradata stock may have risen sharply in recent weeks, 2020 has also created many price discontinuities that could offer attractive trading opportunities. For example, you will be surprised at how counterintuitive the asset assessment is Amazon vs Etsy. Another example is Apple vs Microsoft

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