Is it time to buy MongoDB again?

MongoDB (MDB -2.91%) The stock has seen significant volatility this year, with the next-generation database company’s market cap falling by nearly half since its Feb. 9 peak as slowing revenue growth prompted investors to question its valuation.

Still, this lower share price is a reason for investors to take another look at the value proposition, and the stock has recovered twice from its recent lows. Should investors start buying shares of this SaaS stock again, or should they stay away?

The status of MongoDB

MongoDB offers an important and long overdue update to database technology: non-relational databases. Relational databases, as first introduced by oracle decades ago, contain rows and columns and store specific types of data in each cell.

MongoDB’s Atlas database specializes in storing data that doesn’t fit into defined structures. Video files, tweets, and stock tickers are examples of data types that require this non-relational approach. As a result, MongoDB’s database is becoming increasingly important for managing today’s data needs.

Although its stock price has fallen, customer growth continues. In the first quarter of fiscal 2025, which ended April 30, its customer base grew 14% year over year to 49,200, and the number of customers spending over $100,000 annually with the company grew 21%.

So what went wrong?

At first glance, this kind of growth doesn’t seem like anything that would scare off investors, especially since the financials seem to reflect the gains. In the first quarter of the fiscal year, revenue rose 22% year over year to $451 million.

Nevertheless, net losses increased. In the first quarter of fiscal 2024, MongoDB lost $81 million, compared to $54 million in the same quarter of fiscal 2024. The higher losses occurred primarily because the $426 million the company spent on operating expenses alone was barely less than its total revenue.

Non-cash stock-based compensation costs of $121 million also contributed to the financial woes. Even with free cash flow of $61 million, such costs could cause investors to question the company’s strategy of retaining employees through stock offerings.

In addition, the stock was arguably perfectly valued given MongoDB’s previously high valuation. The price-to-sales (P/S) ratio, which now stands at 10, briefly exceeded 20 in February and was in the mid-teens before the last quarterly report. Against this backdrop, it was understandable that a less than perfect earnings report weighed on the share price.

MongoDB share today

The question for investors now is whether they should buy MongoDB shares before the next earnings report. The lower share price makes the buying argument appear stronger.

The analyst consensus estimate calls for revenue to increase 9% to $464 million in the second quarter of fiscal 2025. Admittedly, revenue increased 40% in the second quarter of fiscal 2024, so much of the optimism surrounding MongoDB has evaporated.

However, the same analysts expect revenue to grow 13% during the year before rising 17% in fiscal 2026.

Moreover, the stock, which is trading at about $250 per share at the time of this writing, has recovered from a 52-week low of about $213 per share. Although the valuation is not cheap, the price-to-sales ratio is close to a multi-year low, which could be a sign that MongoDB stock is forming a short-term bottom.

Should I buy MongoDB shares?

MongoDB stock is probably unsuitable for more conservative investors, but given the company’s situation, the case for taking a speculative position in it seems increasingly compelling. Today’s technology world needs ways to store non-relational data, and MongoDB can provide it.

Revenue growth has slowed significantly, so investors’ conclusion that the higher valuations of the past were no longer justified was probably not wrong. However, with MongoDB’s price-to-earnings ratio down to 10 and revenue growth likely to pick up again, this could be a good time for risk-tolerant investors to buy shares.