Is the Aconex Ltd share price cheap?

Shares in cloud-connected construction software business Aconex Ltd (ASX: ACX) dropped 1.6 per cent to $4.89 today after the group provided an update at its 2017 AGM.

The former market darling has been on a wild ride since its 2014 IPO with shares shooting up to $8.29 in July 2016 before a profit downgrade and series of disappointing updates saw shares fall to $3.08 early in 2017.

It appears the market is finding the stock a little easier to value now with Aconex’s management team forecasting revenue growth of 15%-19% in FY 2018 alongside undetermined EBITDA growth.

Over the “medium-to-long term” management maintained its revenue growth targets of 20%+, although given its track record in meeting forecasts since its IPO investors should take these loose forecasts with a pinch of salt.

In FY 2017 Aconex delivered EBITDA of $15 million on revenues of $161.2 million with the company currently ascribed a market value of close to $1 billion. This puts mid-2016’s market value around $1.6 billion on 10x revenues or more than 100x EBITDA into perspective and shows how investor excitement over tech shares in the software-as-a-service space can sometime lead to excessive valuations.

On 6x trailing sales, Aconex still looks expensive using conventional SaaS business valuation metrics and today’s investors will expect double-digit compound annual growth rates in the bottom line over the years ahead. However, given its mixed track record as a public company and valuation I’m not a buyer of Aconex shares.

Tomorrow, cloud accounting business XERO FPO NZ (ASX: NZX) will hand in its full year results with its stock up 80% over the past year. It’s a business I like, but I wouldn’t suggest considering the buying shares until being able to digest the numbers revealed in tomorrow’s update.

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Motley Fool contributor Tom Richardson owns shares of Xero.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia owns shares of ACONEX FPO and Xero. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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