Data streaming platform provider Confluent (NASDAQ: CFLT) is seeing a remarkable turnaround in its fortunes in the stock market of late. After rising rapidly in early 2024, the stock has started to fall and has underperformed the broader tech sector recently, but has made a huge jump since early October.

More specifically, Confluent stock is up 45% since October 1st (at the time of this writing). This parabolic move, a scenario that refers to a company’s stock price rising rapidly over a short period of time (identical to the right side of a parabolic curve), appears to have gained momentum following the company’s third quarter release in 2024. results on October 30.

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Confluent’s healthy growth looks sustainable due to a huge addressable market

Confluent’s Q3 revenue was $250 million, up 25% year-over-year, of which $240 million was from subscriptions. Of the company non-GAAP Net income (adjusted) increased fivefold year-over-year to $0.10 per share. The numbers were well ahead of Confluent’s Q3 guidance of $0.05 per share in adjusted earnings on $233.5 million in subscription revenue.

Even better, Confluent raised its guidance for the full year and now expects to end the year with $917 million in subscription revenue and $0.25 per share in adjusted earnings. It had earlier expected $910 million in subscription revenue for the year, along with $0.20 per share in earnings. Beat-and-raise quarterly report explains why Confluent shares soared more than 13% on November 1st.

The updated guidance means Confluent is on track to grow revenue by an additional 20% in 2024, while its earnings would be up significantly from last year’s reading of $0.04 per share. Even better, Confluent is expected to maintain impressive levels of earnings growth over the next two years as well.

Additionally, analysts forecast its earnings to grow at a compound annual growth rate (CAGR) of 125% over the next five years. The reason Confluent is expected to see such amazing growth is because of the huge total addressable market (TAM) sit on it The company’s TAM stood at $60 billion at the end of 2022, a number expected to reach $100 billion in 2025.

Confluent’s cloud-based data streaming platform enables customers to connect, process and govern their data in real-time, compared to the traditional method of initially storing data in silos and later processing in batches. The bright side is that Confluent’s data streaming platform has gained solid customer traction.

The company saw a 16% year-over-year increase in its customer base in Q3, ending the quarter with 5,680 customers. More importantly, Confluent’s net dollar retention rate was 117% last quarter. This metric compares the annual recurring revenue (ARR) of Confluent customers at the end of a quarter to the ARR from the same customer in the year-ago period. So a reading above 100% in this metric is an indication that Confluent’s existing customers have increased their spending on the company’s offerings.

Therefore, Confluent not only attracts new customers, but also earns a larger share of their wallets. As such, the company appears to be on track to make the most of the multibillion-dollar end-market opportunity it’s in.

But what about the assessment?

As mentioned, Confluent expects to end 2024 with $0.25 per share in earnings. Assuming the company hits that mark, it now trades at 109 times 2024 earnings (using the current stock price). Moreover, the earnings forecast of $0.35 per share for next year will raise the forward earnings multiple to 78.

These multiples are expensive when you consider the heavy technology Nasdaq-100 the sector has a forward earnings multiple of less than 31. Of course, Confluent’s bottom line is growing at an incredible pace and may be able to justify its expensive valuation, but the company will need to ensure that it maintains its outstanding levels of growth. .

Yahoo! Finance pegs Confluent’s price-to-earnings-growth ratio (PEG ratio) at just 0.62, based on the 125% annual growth in earnings it’s projected to produce over the next five years. A PEG ratio of less than 1 indicates that a stock is undervalued relative to the growth it is expected to produce. So investors looking for a growth stock can still consider buying Confluent, although they must remember that it will need to continue to post high levels of economic growth to sustain its parabolic movement.

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Rough Chauhan has no position in any of the shares mentioned. The Motley Fool recommends Confluent. The Motley Fool has a disclosure policy.

This growth stock has gone parabolic and can grow further due to a massive addressable market was originally published by The Motley Fool