Investment in Semrush Stocks

Usually, the heroes of our articles are mega-cap or large-cap companies. But today we will make an exception for Semrush Holding Inc. This is a company from the Information technology sector and software industry, whose shares SEMR stocks are traded on the New York Stock Exchange. Semrush’s capitalization as of June 24 is $1.9 billion. One of the small-cap companies` brightest representatives is under Eyestock’s close attention.

What does Semrush do?

As a SaaS platform, the company enables clients to understand trends and provide valuable information to improve their online visibility, drive traffic to their websites and social media pages and online listings, distribute content to clients and measure their digital marketing campaigns. Semrush helps in search engine optimization (SEO), search engine marketing (SEM), content, advertising, competitive research and social media management (SMM). The firm offers paid products and tools to clients through monthly or annual subscription plans ranging from $130 to $500 per month. By the way, this article was written using Semrush`s search engine optimization, so to speak, we put into practice the products of the company that we are researching.

SEMR shares appeared on the stock exchange a little over 3 years ago and during this time brought their owners only a 17% return, while the S&P 500 grew by almost 40%. But this is explained by the fact that the business has just found the break-even point, and for 3 consecutive quarters it has shown net profit, which over the last 12 months has almost reached $13 million in total.

Semrush Financials

Semrush`s net profit margin is only 4%, but you should not attach much importance to the low level of this metric, since the company was able to complete 12 months with a profit for the first time. According to the Q12024 report, the company’s quarterly revenue reached $85 million with a 21% increase than in 2023. At the same time, the cost of revenue increased by only 16%, and operating expenses by only 1%. Therefore, in the coming periods we expect higher net margin indicators from the company.

The company does not use debt, and its current ratio is 2.8. Semrush is a totally solvent company. This allows us to look at the prospects for future development with great optimism.

We would like to draw attention to such an indicator as return on invested capital. Let us remind, ROIC ratio shows how much net operating profit after tax a company earns per unit of funds involved in its core business, and in this case, it measures management efficiency much more objectively than classic ROE. According to our calculations, as of March 31, 2024, Semrush’s ROIC is a fantastic 269%. Learn more about this indicator and its application in Return on Invested Capital as an Investment Decision Tool insight.

Based on the results of fundamental analysis, we can conclude that Semrush is a developing company in a stage of active growth.

Is Semrush`s business sustainable?

Let’s analyze the company’s net profit growth rate. EPS (earnings per share) growth in the last quarter was 121%, which is approximately the same as the average growth rate for the previous 2 years. At the same time, the volatility of this indicator is quite low for a small-cap company — only 23%. To measure the sustainability of development, we are looking for the ratio between these quantities, which we call the Stability Ratio. For Semrush, this figure is 5.5, and this is the fourth-highest result among all publicly traded small caps on US exchanges.

The final rating on the Eyestock scale

The result of the financial overview of public companies is the Eyestock Rating, which is based on a comprehensive analysis of the business indicators. If it is equal to or exceeds 100%, then we consider the shares of such a company to be a viable investment. Semrush’s rating is currently 113%, which is 13% better than the threshold. Over the past year, the rating has increased from 13% to 113%.

Forward Outlook

According to various estimates, Semrush’s share in the advertising market does not exceed 5%, and the growth potential is enormous. The company’s management is very cautious in its future forecasts. However, for 2024, an annual revenue range of $364-368 million was announced, which is 20% higher than in 2023. Growth is expected to be lower than in 2023 (+21%) and 2022 (+35%). However, operating margin is expected to be 10-11%. The current operating margin level is only 2%.

Competitors

One of Semrush’s (NYSE: SEMR) key competitors is Israeli company SimilarWeb Ltd (NYSE: SMWB). By all indicators, the micro-cap company is inferior to today’s insight hero. The company still has not broken even and is actively financing its development with debt borrowings. SimilarWeb’s final rating is -2%, which is significantly lower than Semrush’s.

Semrush price-to-earnings ratio

The current P/E ratio for Semrush is 153. Unfortunately, the relative historical method of valuation does not allow us to calculate the stock fair value, since only 2 segments of the 12-month interval in the company’s history were completed with a profit and allowed us to calculate the P/E. However, after a financial analysis of the company’s performance and growth rate, we can conclude that the company’s shares may appeal to long-term investors with a high-risk profile with a small share in the overall stock portfolio.