Ncino stock

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2 Reasons to Avoid nCino Stock and 1 Reason to Buy After Q4 Earnings

Investing in fresh IPO stocks can be tough. nCino (NASDAQ:NCNO) is a perfect example. This is a high-growth cloud software company and has some powerful friends. It was built with's (NYSE:CRM) platform, and Salesforce remains an investor in and partner with nCino for the financial services industry. Nevertheless, shares are well below where they were when they made their publicly traded debut last summer.

To be clear, this software-as-a-service firm deserves to be on your radar as it helps banks and financial institutions around the globe get updated for the digital era. But I'm still not buying -- yet. Here are two reasons not to buy, along with one reason to buy anyway if you're looking at the long-term potential for this small software tech outfit.

Impressive growth may have been due to the pandemic

nCino recently put the wraps on its 2021 fiscal year (the 12 months ended Jan. 31, 2021), and results were impressive. Revenue was 48% higher than the year before, increasing to $204 million. The company's free cash flow also improved to $4.88 million compared with negative $14.8 million last year.  

However, included in this growth was nCino's acquisition of financial analysis and compliance outfit Visible Equity over the summer of 2019. More importantly, though, some of nCino's long-term growth may have been pulled into 2020 during the pandemic as banks and financial services firms scrambled to update their operations for a new digital era. nCino's operating system helps speed up banking functions and makes remote work more feasible -- things desperately needed as the industry's status quo gets disrupted by fintech start-ups.  

Person in a suit holds a tablet with a brain made of electrical connections hovering above it.

Image source: Getty Images.

But the outlook for the new year indicates some of these tech updates may have been accelerated in calendar year 2020 -- and nCino will have a tough lap time to clear. Fiscal 2022 guidance calls for revenue of $254 million at the midpoint. That implies growth of just 25%. While many companies would love to have such a double-digit growth trajectory, this is a sharp slowdown for nCino.  

Valuation is still high

Given this slowdown, it's important to reevaluate this high-flying stock's valuation. And at 25 times expected fiscal 2022 sales, nCino is still trading for a very high premium even after falling some 30% from all-time highs. Exercise caution before pouncing on this cloud computing stock.  

At this juncture, I think Salesforce is the better buy. It owns over one-tenth of nCino, so investors get some exposure to nCino simply by purchasing Salesforce. And Salesforce is also forecasting growth in excess of 20% in the next year but only trades for 6.5 times forward sales.  

But international expansion is just getting started

In spite of nCino running into slowdown problems for now, this stock is still worth keeping a close eye on. The company's software has plenty of potential customers it can acquire in the years ahead, especially among bigger banks. It's already picked up Bank of America as a client and is helping the financial behemoth tidy up its operations and save on expenses. Other legacy banking firms could follow suit.  

Plus, nCino is only just starting to scratch the surface on international expansion. Fourth-quarter international revenue made up just 14% of the total. During its last quarterly earnings call, CEO Pierre Naude said its first customer in continental Europe (a bank in the Netherlands that just signed on back in the second quarter) expanded its relationship with nCino. Another deal with a big customer in the Baltic countries was also struck in the fourth quarter.

And Naude said 50% of its new-customer pipeline is now outside of the U.S. It's a big world out there, and nCino's banking operating system has years of growth potential ahead of it.  

If you believe in the digital banking and fintech movement, nCino stock is certainly worth consideration. I'm not buying just yet, but this small company could be a big winner over the long term as it helps legacy financial services get up to speed with the times.


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Why Shares of nCino Jumped 17.5% Today

A great second-quarter showing and rosy outlook had investors feeling fine.

Nicholas Rossolillo
Author Bio
Nicholas has been a writer for the Motley Fool since 2015, covering companies primarily in the consumer goods and technology sectors. He is also the founder and president of Concinnus Financial, a Registered Investment Advisor based in Spokane, WA. He enjoys the outdoors up and down the West Coast with his wife and their Humane Society-rescued dog. Follow @nrossolillo
Follow @nrossolillo

Key Points

  • nCino reported revenue of $66.5 million in Q2, handily beating its own forecast.

What happened

Shares of nCino (NASDAQ:NCNO) were up about 17% as of noon EDT today. Second-quarter sales came in higher than expected, prompting an increase in management's full fiscal year 2022 expectations (for the 12-month period that will end in January 2022). The cloud-computing-based banking platform is doing well this year in spite of lapping the sharp uptick in sales last year during the pandemic, which sent a stampede of financial institutions scrambling to update their operations for a new digital era.

So what

Specifically, nCino reported second-quarter sales of $66.5 million, up 36% from a year ago and topping its previous outlook for revenue as high as $64 million. Through the first half of the current fiscal year, free cash flow was a positive $19.6 million. That was down from the $29 million generated during the same time frame last year, but this is a growing business that's funneling excess cash back into sales and marketing efforts. Even so, it's an efficient operation. Free cash flow profit margin was 15% during the first half of this year.  

Someone using a smartphone to check financial apps.

Image source: Getty Images.

Now what

As for the outlook, nCino upped full-year revenue expectations to a range of $263 million to $264 million (it was $258 million to $260 million previously). Based on this forecast, the stock now trades for nearly 27 times expected full-year sales.  

It's a premium price tag, but nCino has a promising future. Even the largest banks are finding the small software outfit a worthy partner in executing their digital transformation. During the last quarter alone, a new commercial banking deal was inked with Wells Fargo, a relationship with U.S. Bank was expanded to help with its wholesale bank lending division, and nCino made its entrance into France partnering with a top institution there.  

Both here in the states and abroad, financial organizations need a digital upgrade, and nCino and its platform (built and partnered with Salesforce's software suite) are in high demand. The steep price tag on the stock means volatility will remain a constant for now, but it is at least proving it's far more than a one-off pandemic winner.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Cloud-banking firm nCino CEO talks adding long-term value to banks

nCino Inc Registered Shs Stock , NCNO

nCino, Inc. engages in the development of a cloud-based operating system for banks. The firm serves financial institution customers of all sizes and complexities, including global financial institutions, enterprise banks, regional banks, community banks, credit unions, and new market entrants, such as challenger banks. Its applications include Client Onboarding, Loan Origination and Deposit Account Opening. The company was founded by Pullen Daniel, Neil Lawrence Underwood and James S. Mahan, III on December 13, 2011 and is headquartered in Wilmington, NC.

Ownerin %
Insight Venture Management LLC32.47
Insight Holdings Group LLC32.45
T. Rowe Price Associates, Inc. (Investment Management)13.72
T. Rowe Price Associates, Inc. (Investment Management)12.92
Wellington Management Co. LLP7.30, Inc. (Investment Management)6.74
HMI Capital Management LP5.52
T Rowe Price New Horizons Fund5.17
HMI Capital Management LP5.10
Kayne Anderson Rudnick Investment Management LLC4.89
Vanguard Group, Inc. (Subfiler)4.34
Wellington Management Co. LLP4.26, inc.3.74
Virtus KAR Small Cap Growth Fund2.93

Shareholder percentage totals can add to more than 100% because some holders are included in the free float.


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nCino (NCNO) Stock - Best Banking Technology Stocks to Watch \u0026 Buy


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