UPDATE: BofA Securities Downgrades Vertex Inc. (VERX) to Underperform
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BofA Securities analyst Brad Sills downgraded Vertex Inc. (NASDAQ: VERX) from Neutral to Underperform with a price target of $20.00.
The analyst comments "We are downgrading Vertex shares to Underperform from Neutral and lowering our PO to $20 from $24. We see limited downside, with shares trading at 5x CY23 rev. However with slowing growth and negative margin leverage, we see limited catalysts for the shares. In recent years, the company has ramped investment in sales/marketing to accelerate expansion deal activity (only 25% penetration in the large enterprise installed base roughly 4,000 customers at IPO). This negatively impacted EBITDA margin (estimated 16.8% in FY21, down from 21.1% in FY19), though these investments have not yielded results. Net revenue retention has decelerated to 106% in Q2FY21 from 108% in Q2FY20, and ARR growth has decelerated to 13% org from 16%. Some of the issue is likely pandemic related headwinds that weigh on back office ERP upgrade projects. However, we believe attrition to SMB sales tax cloud leader Avalara moving up market, and lower priority for sales tax automation projects in the large enterprise segment is also placing pressure on growth (unlike the SMB segment where Avalara is benefitting from a ramping adoption cycle to manage omni channel complexity and growing compliance pressure)."
Shares of Vertex Inc. closed at $20.18 yesterday.
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