While the Technology sector offers significant growth opportunities, few can match the percentage-gain potential of Southeast Asia. Therefore, investors willing to handle the risks tied to swinging for the fences may consider regional digitalization platform Grab Holdings (GRAB). Grab offers a broad suite of mobile apps, including platforms for mobility, delivery, and digital financial services.
Per its public profile, the company has a presence in Cambodia, Indonesia, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam.
Enjoying unanimous bullishness among Wall Street analysts, the company has the potential to dominate the underlying digital economy. As a result, I am bullish on GRAB stock.
Financial Projections Make a Compelling Case for GRAB Stock
Although investors can talk all day about a particular company’s underlying narrative, it’s important that the entity has some meaningful financial substance. If the numbers are completely out of whack, it may be time to seek a different opportunity. Fortunately, the beauty of GRAB stock is that the supporting financials deliver confidence that it’s an undervalued opportunity.
Right now, the company trades at a trailing-year sales multiple of 5.32x. Admittedly, that’s a bit high for the underlying application software industry, which sits at 4.12x.
Still, even with the higher-than-average multiple, investors should note the context. First, the average sales multiple between the first quarter of 2023 to Q1 2024 stood at 6.73x. Essentially, the market previously accepted a premium of nearly seven times the prior year’s revenue. Therefore, if GRAB stock finds some mojo, it can rise back to its prior valuation.
The more important consideration are the forward projections. In Fiscal 2024, covering experts believe that the digitalization specialist may post sales of $2.77 billion. If so, that would be up 17.5% from last year’s result of $2.36 billion.
In addition, analysts believe that by the end of Fiscal 2025, the top line might expand to $3.24 billion. That would imply a growth rate of 16.9% from projected 2024 revenue. Notably, the high-side estimate calls for sales of $3.53 billion in that year.
This is where the narrative gets interesting. Assuming a share count of 3.84 billion, at projected 2024 sales, GRAB stock would trade at 4.7x sales. At the consensus view of $3.24 billion in the following year and assuming the same share count, the multiple would fall to around 3.7x.
Now, this isn’t an apples-to-apples comparison because you’ve got to expect other companies within the application software industry to improve their financial performance. However, as Grab continues to ping strong numbers in the top line, the forward valuation of GRAB stock decreases.
And yes, the sales numbers are indeed strong. Data from TipRanks shows that going back to at least Q1 2022, the company has consistently beaten consensus sales targets. That actually provides confidence that over the next two years, it’s more than possible for Grab to land its revenue near the upper end of the estimate spectrum.
Credible Fundamentals Augment Optimism for Grab
A mainline criticism regarding the possibility that GRAB stock may be undervalued based on forward projections is that past performance is past performance: it doesn’t guarantee anything. While that’s a factual statement, when financial forecasts are stacked with other fundamental data, the case for the digitalization powerhouse becomes increasingly attractive.
Let’s look at the domestic Internet economy. For quite some time, ride-sharing juggernaut Uber Technologies (UBER) has enjoyed a Strong Buy rating among covering experts. Thanks to strong travel sentiment in the U.S., Uber’s primary ride-sharing business is performing well. Further, the company has witnessed success in other areas, such as food deliveries. It’s doing so well that Uber has also branched into the logistics and transportation arenas.
The thing is, the U.S. is a mature economy and yet there’s more than enough room for Uber to grow. On the other hand, the Southeast Asia market is full of low-hanging fruit. By carving out a piece of the pie, Grab can potentially see its sales skyrocket.
That’s not a hyperbolic statement. Based on data from the World Economic Forum, experts there believe the region can become a $1 trillion digital economy. Even if the collective market doesn’t quite reach the magic trillion-dollar mark, consumers there are adopting mobile technologies at a rapid rate.
So, the math arguably makes plenty of sense for GRAB stock: historically strong sales figures, reasonable forecasted revenue growth, booming interest in digitalization, and a viable regional market. The fact that Grab has lost almost 73% of its value since its public market debut may be a once-in-a-blue-moon opportunity.
Is Grab Holdings Stock a Buy, According to Analysts?
Turning to Wall Street, GRAB stock has a Strong Buy consensus rating based on 12 Buys, no Holds, and zero Sell ratings. The average GRAB stock price target is $4.67, implying 39% upside potential.
The Takeaway: GRAB Stock May Soar on a Viable Digital Economy
Globally, consumers have demonstrated a strong interest in digitalization products. However, Grab has an advantage in this ecosystem because it’s tied to the Southeast Asian market, which offers viable ground for tremendous growth. Just as well, the combination of analyst projections and economists’ bullish regional expectations should help GRAB stock march back upward toward its prior valuation premium.
