Has nCino Finally Bottomed Out After 3-Year Collapse? Is It a Buy?

nCino’s (US:NCNO) recent second-quarter report gave investors something to cheer about, stoking a 10% price surge in Wednesday’s trading.

But is this resurgence the dawn of a brighter chapter for the banking software company or a fleeting moment of optimism?

This upturn was driven by nCino’s commendable financial performance that not only beat market expectations but showed its ability to adapt in a turbulent economic landscape.

The Wilmington, North Carolina fintech reported revenue of $117.2 million, impressive 17.7% year-on-year growth, primarily spearheaded by subscription revenue which totaled $99.9 million, up by 18.3% compared to the same quarter last year. This boost in subscriptions signals a growing reliance on the company’s software by its clientele.

Big Promise in Overseas Deals

More good news arrived from overseas, as nCino’s international revenues soared by 47%, accounting for almost a fifth of total revenues. This global traction is perhaps most notably illustrated by the company’s pioneering deal in the Middle East with one of the UAE’s largest banks, showcasing nCino’s expanding global footprint and its resonance in diverse banking environments.

On the earnings front, nCino reported earnings per share of 9 cents, which was 2 cents above the consensus. That was attributed to the combination of robust revenue figures and beneficial margin leverage. 

Fintel’s earnings analysis page shows the track record of earnings surprises against analyst expectations in 12 of the last 13 quarters.

Management Effectiveness Shines

However, it’s when we look at management effectiveness, via Fintel’s financial metrics and ratios page for NCNO, that it’s clear that the underlying operation performance is at its best level over the last year.

The key measure we look for here is the OCROIC, or operating cash return on investor capital. While the ratio is still negative, it has recovered from low points in 2022 and is likely to hit an inflection point in the coming quarters if recent performance continues.

However, the road ahead is peppered with challenges. nCino provided a somewhat mixed outlook for 3Q FY24 and made only slight amendments to the full-year revenue projections. This conservatism, while possibly prudent given ongoing uncertainties within the U.S. enterprise banking segment, might not satiate investors hungry for aggressive growth forecasts.

Reasons to Stay Tuned

Nevertheless, there are several elements of nCino’s story that should sustain investor interest.

The company’s dedication to refining bank employee functionalities, an area often overlooked in the digital transformation journey, is commendable. Its nIQ platform, which leverages artificial intelligence and machine learning, further exemplifies nCino’s innovative approach to simplifying intricate banking operations, from credit risk analysis to loan underwriting.

The company’s notable success in securing significant subscription deals with a diverse set of banks, from enterprise to community, underscores the value and efficiency it brings to the table. The essence of nCino’s offering is clear  — a top-tier SaaS solution aiming to streamline the banking world, an industry often ensnared in complexities.

Yet, challenges persist. Despite the robust international growth and some domestic clients pivoting towards digital transformation projects, caution still hovers over the US enterprise market. The fluctuations in bookings and billings, although displaying some positive signs like the 22% growth in net-new AC, reflect an industry still grappling with its direction.

Next month’s analyst day could prove pivotal. Management might provide the clarity and direction that investors seek, offering a deeper insight into the company’s strategies and outlook.

Analyst Insights

Stephens analyst Charles Nabhan was pleased with the results that beat expectations, however his highlight was the growth and normalization in bookings activity and shift in pipeline composition regardless of the challenging macroeconomic backdrop.

The brokerage has a $34 target price and ‘overweight’ call on the stock.

Fintel’s consensus target price of $31.28 suggests the market thinks the stock looks fully valued following the rally. We think this target could drift higher in the coming weeks as brokers update modeling. Majority of analysts have positive or neutral recommendations on the stock.

The company’s efforts in diversifying its portfolio demonstrate foresight, a strategic maneuver that often indicates long-term sustainability and resilience against market volatility.  Given the convergence of these factors, and the stock’s recent break above its resistance level, it signals a robust bullish phase.

The recent uptick in nCino’s share price and its Q2 performance might be the initial signs of the company’s rebound, but only time will determine if this momentum can be sustained.

What’s evident is nCino’s unwavering commitment to innovating within the banking sector, positioning itself as a valuable ally in the industry’s digital transformation journey.

This article originally appeared on Fintel

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