While Excel gives Microsoft Co. (NASDAQ: MSFT) the dominating position in data analysis and visualization software, as it is globally accepted through education and corporations, it is far from perfect. Regarding project management, platforms like Smartsheet Inc. (NYSE: SMAR) take the lead but aren’t as widely followed as other peers like Salesforce Inc. (NYSE: CRM).

Being under the radar may be a bummer for impatient investors. Still, it can also be a blessing in disguise to avoid some of the negative spotlight. Salesforce stock recently fell to a once-in-a-generation price after its quarterly earnings results, which weren’t wrong. Still, because all eyeballs fell on the stock, any figure missing expectations becomes an amplified event very quickly.

Today, investors can peg Smartsheet against other under-the-radar peers like Box Inc. (NYSE: BOX) and find out why the market is willing to place a premium valuation on Smartsheet, making its current price a level to start watching into the next quarter. Before details are discussed, though, here’s how Smartsheet fits into the technology sector.

Smartsheet’s Strategic Investment in Automation and Cloud

The world of artificial intelligence may start looking like the 2000s dot-com bubble, where stocks like Cisco Systems Inc. (NASDAQ: CSCO) made all-time highs that haven’t been able to return to nearly three decades later. This is why investors need to stay with companies that are already making a path into A.I. without unrealistic assumptions.

Smartsheet is heavily invested in automation and keeping project management in the ‘cloud,’ an area well-versed in today’s A.I. capabilities. Keeping assumptions realistic for Smartsheet, unlike a company that could promise to cure cancer through A.I. (possible, but not very likely), here are the projections investors can lean on.

Here’s what drove the Vanguard Group to invest up to $649.6 million into Smartsheet as of March 2024. Professionals tend to get into stocks they believe are cheap today relative to how much profit growth they can deliver in the future. Therefore, analyst earnings per share (EPS) 26.4% growth projections for Smartsheet can be taken seriously.

Smartsheet’s Forward P/E Ratio and Market Sentiment

Even though Smartsheet trades at only 70% of its 52-week high, trends in the mid-cap technology sector show a similar behavior. Taken as a whole, the mid-cap software as a service (SAAS) industry trades at an average of 67.5% of its 52-week high, so there’s nothing specific about Smartsheet that could have led to this bearish price action.

In fact, markets believe it could be an outlier in the pack. Using the forward P/E ratio, investors can gauge how the market feels about Smartsheet’s future earnings, and ideally, markets are willing to pay a premium for this stock over its peers.

A 26.6x forward P/E commands a premium of 76.8% over Box’s 15.1x valuation, but that’s not all. Smartsheet still calls for a 62.4% premium over the 16.4x average forward P/E multiple today compared to the rest of the software industry.

A price-to-book (P/B) ratio of 8.3x also stands 27.6% above the computer industry’s 6.5x average P/B, showing that markets like Smartsheet’s balance sheet a lot more than peers, which, of course, can be accredited to the mere 7.6% debt as total capital in the company’s balance sheet.

Young technology stocks tend to have much higher debt levels, so Smartsheet’s high debt level is a refreshing sign of stability, justifying its premium valuations.

Wall Street analysts recently lowered their price targets for Smartsheet, but they still see it going as high as $49.7 a share, calling for up to 34.5% upside from where it trades today.

Strong Financial Performance: Smartsheet’s 21% Revenue Growth

Despite recently reaching $1 billion in annualized recurring revenue, not everything is rainbows and butterflies for Smartsheet. This software's main advantage over Excel is its ability to communicate in real-time with other team members working on the same project.

However, as cool as this feature may be, Microsoft has all the resources to duplicate and improve Smartsheet’s golden ticket to the profit factory. Now, as timing in the A.I. race is of the essence, that could prove to be an opportunity.

Risky nonetheless, but still an opportunity. If Microsoft weighs out how long it would take to improve Smartsheet’s product offer and finds that it would be better to buy out the company instead, it could prove to be a very lucrative – albeit hypothetical – event for Smartsheet shareholders.

Returning to reality, more and more customers look to Smartsheet as their solution to project management. As the fiscal year 2024 results show, revenue grew 21% over the year, and operating cash flow more than tripled to reach $157.8 million, bringing Smartsheet awfully close to total profitability.