Our 12-month target price of $38 (rounded) for ALKT is based on an average of our EV/Sales and free cash flow-based analyses.

EV/Sales Analysis: We derive the EV/Sales-based target price using a comparables-based approach. We compiled a primary comp group of technology companies that serve the bank and credit union end market. We also consider a secondary comp set of financial and FinTech SaaS companies for reference purposes. We believe an EV/Sales target multiple range of 7x – 10x is appropriate. The target range incorporates primary and secondary comps, along with Alkami’s estimated ~mid-twenties organic revenue growth between FY24-FY26E, and company-specific factors such as its pending progress in the Bank end market and M&A integration. Applying the targeted multiple range to our FY26E revenue estimate of ~$559 million, we arrive at an enterprise value of ~$4.5 billion. We then add projected 1-year net cash to arrive at a price of $39.

Discounted Cash Flow (DCF) Analysis: Based on our DCF analysis, we derive a $37 price for ALKT. Our analysis incorporates the following assumptions: Weighted Average Cost of Capital (WACC) of ~10% (calculated), based on a Beta of ~1.3 (assumption), a Risk-Free Rate of ~4.3% (10-year treasury yield) and a Market Risk Premium of ~4.1% (Damodaran). Our exit multiple implies a terminal growth rate of ~2.5%.

The key risks to our target price and investment thesis include but are not limited to: 

• End Market Concentration – Alkami’s focus is solely on financial services, leading to its performance being tied to the health of the end market, bank IT spending, and other risk factors that are specific to financial services (politics, regulation, economic cycle, interest rates, etc.).

• Competitive Risks – Alkami faces competition from a number of established and newer players, many with significant levels of resources. It will likely be required to continue to invest in order to keep pace with trends in peers’ technology capabilities.

• Solution Extensibility – Longer-term growth will likely need to be supported by bank end market penetration, where large-scale solution extensibility remains to be proven (factors such as comfort with configuration versus customization and public cloud hosting). 

• Profitability Timeline – The company has not yet become profitable or produced positive cash flows, and the path to profitability may be non-linear.

• Other factors – Rate of organic user growth, cybersecurity, regulatory risks, pandemics, etc. 

If any of these risk factors has a greater downside impact than we anticipate, the share price will likely have difficulty attaining our target price. 

This stock is High Risk based upon our quantitative model, but we do not believe a High Risk rating is warranted for ALKT due to the high level of visibility into the business model, various industry and company themes that support growth, and the management’s level of experience; therefore, a High Risk rating has not been applied.