We came across a bullish thesis on Samsara Inc. (NYSE:IOT) on Substack by Welfare Capital Research. In this article, we will summarize the bulls’ thesis on IOT. Samsara Inc. (NYSE:IOT)'s share was trading at $45.55 as of Dec 24^th. IOT’s forward P/E was 181.82 according to Yahoo Finance.

A software engineer at work, surrounded by a wall of computer monitors connected to a 'Data Cloud' platform.

IOT reported its latest earnings on Thursday, leading to a mixed market reaction. Despite a strong performance, with adjusted EPS of 7¢ compared to the expected 4¢, shares fell 5% the following day, with a dip as deep as 12% in after-hours trading. This negative reaction can be attributed to the market's overvaluation of the stock, coupled with a slight slowdown in growth. However, the company remains up 2.8% over the past month and achieved new 52-week highs during the quarter, indicating resilience. Analysts have raised their price targets post-earnings, further signaling confidence in the company's future prospects. Shares have surged 33% since May, suggesting the market still sees long-term value.

Revenue for the quarter increased by 36% year-over-year to $321 million, with ARR growing 35% to reach $1.35 billion. GAAP free cash flow (FCF) margin rose by 6 points to 10%, surpassing expectations and showcasing impressive operating leverage. Gross margins also improved, ticking up to 76%. The company hit its target net revenue retention rates, with mid-market at 115% and enterprise at 120%, confirming its strong customer retention and expansion. For FY25, IOT raised its adjusted EPS guidance to 23¢, triple its FY24 figure of 7¢, signaling continued profitability. Although ARR per $100K+ ARR customer remained flat sequentially, it showed a 3.5% YoY increase, which, while not as robust as expected, remains a positive indicator of customer engagement.

While growth has slowed slightly, the company continues to benefit from its strong upsell and cross-sell capabilities. Large customers, some with multiple expansions, represent a significant portion of revenue, and these expansions contribute higher-margin contracts. For instance, one customer, having expanded 18 times since 2018, remains a top spender. This trend of consistent expansions across key clients supports IOT's continued growth prospects despite the deceleration in new customer adds.

The company also added over 1,000 mid-market customers and surpassed 100 customers with $1 million+ ARR, further bolstering its position. New product offerings, such as the Asset Tag product and AI-powered Samsara Intelligence app, are promising developments that could drive future growth. International markets, especially the UK and Europe, continue to offer untapped potential, with international sales accounting for 17% of the new ACV in the quarter.

Overall, IOT's quarter was solid, with strong free cash flow margins and continued customer expansion. The company remains well-positioned for long-term growth, and its operating leverage, coupled with product innovation, sets it up as a significant player in its industry. Despite temporary growth slowdowns, IOT’s future outlook remains highly favorable.

Samsara Inc. (NYSE:IOT) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 30 hedge fund portfolios held IOT at the end of the third quarter which was 26 in the previous quarter. While we acknowledge the risk and potential of IOT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than IOT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.