Does Teradata Stock Have Room For More Gains After Cloud Surprise?

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

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

However, looking at peer valuations in the Cloud-based data warehousing space, we think the stock has scope for more gains in the long-run. For perspective, Snowflake – one of the best-known cloud data warehousing stocks trades at a whopping 140x projected 2021 revenue. (related: Snowflake Valuation: Expensive Or Cheap?) In comparison, Teradata’s stock still trades 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-rate basis, but growth is likely to remain strong. The company expects public cloud ARR to increase by at least 165% year-over-year in Q1 2021 and expects to at least double ARR year-over-year for 2021. ^[1] Considering the big disparity in valuations between Teradata and its cloud-first rivals, the large and growing cloud data warehousing market, and Teradata’s strong recent execution, the stock could have room for further gains in the long-term.

While Teradata stock may have rallied big in recent weeks, 2020 has also created many pricing discontinuities that can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Amazon vs Etsy. Another example is Apple vs Microsoft
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