Goldman bearish on AvidXChange stock, cites limited growth prospects and valuation concerns

On Monday, Goldman Sachs (NYSE:) adjusted its stance on AvidXChange Holdings (NASDAQ:AVDX) stock, shifting from a Neutral rating to a Sell. The firm also revised its price target downward to $11.50, a decrease from the previous $13.00. The revision follows a period where AvidXChange's shares appreciated by approximately 31% after its third-quarter earnings report.

The investment bank's decision comes amid concerns about the company's valuation and growth prospects. Despite acknowledging AvidXChange as a front-runner in the B2B payments digitization for mid-sized companies, Goldman Sachs perceives a more negative risk-reward balance at the current stock price level. The analyst noted that AvidXChange's shares are trading at a similar or higher valuation compared to its faster-growing competitor, BILL.

Goldman Sachs highlighted that while the average stock in their coverage is expected to see a 13% upside, AvidXChange's revised price target suggests a 5% downside. This adjustment is based on the belief that there is limited potential for revenue growth over the next year, with the company likely to rely on cost management to mitigate revenue shortfalls.

The firm also expressed concerns over the possibility of multiple compression if AvidXChange's revenue growth into 2025 does not meet expectations. This scenario could contribute to a less favorable outlook for the company's stock, prompting the downgrade to a Sell rating.

InvestingPro Insights

Goldman Sachs' recent downgrade of AvidXChange Holdings (NASDAQ:AVDX) to a Sell rating has put the spotlight on the company's financial health and future prospects. In light of this, a look at the real-time data and InvestingPro Tips can provide a clearer picture of what investors might expect going forward.

According to InvestingPro data, AvidXChange has a market capitalization of approximately $2.38 billion, with a notable revenue growth of 20.35% in the last twelve months as of Q4 2023. Despite a negative P/E ratio of -56.10, analysts have revised their earnings upwards for the upcoming period, indicating optimism about the company's profitability in the near term. Additionally, the company has experienced a significant price uptick of 38.89% over the last six months, reflecting a strong performance in the stock market.

InvestingPro Tips suggest that while AvidXChange has not been profitable over the last twelve months, net income is expected to grow this year. This aligns with the analyst prediction that the company will turn a profit this year. Furthermore, with 8 analysts revising their earnings estimates upwards, there is a consensus that the company's financial trajectory is on an upward trend. It's important to note that AvidXChange does not pay a dividend, which may be a consideration for income-focused investors.

For readers interested in a deeper analysis, InvestingPro offers additional tips on AvidXChange. By using the coupon code PRONEWS24, readers can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking further insights that could inform investment decisions.

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