Over the past six months, Semrush’s shares (currently trading at $11.91) have posted a disappointing 11.5% loss, well below the S&P 500’s 4.7% gain. This may have investors wondering how to approach the situation.
Following the pullback, is now the time to buy SEMR? Find out in our full research report, it’s free.
Why Are We Positive On SEMR?
Started by Oleg Shchegolev while still in university, Semrush (NYSE:SEMR) is a software as a service platform that helps companies optimize their search engine and content marketing efforts.
1. Billings Surge, Boosting Cash On Hand
Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.
Semrush’s billings punched in at $99.79 million in Q3, and over the last four quarters, its year-on-year growth averaged 23.2%. This performance was impressive, indicating robust customer demand. The high level of cash collected from customers also enhances liquidity and provides a solid foundation for future investments and growth. 
2. Elite Gross Margin Powers Best-In-Class Business Model
Software is eating the world. It’s one of our favorite business models because once you develop the product, it usually doesn’t cost much to provide it as an ongoing service. These minimal costs can include servers, licenses, and certain personnel.
Semrush’s gross margin is one of the best in the software sector, an output of its asset-lite business model and strong pricing power. It also enables the company to fund large investments in new products and sales during periods of rapid growth to achieve outsized profits at scale. As you can see below, it averaged an elite 83.1% gross margin over the last year. That means Semrush only paid its providers $16.88 for every $100 in revenue. 
3. Operating Margin Rising, Profits Up
Many software businesses adjust their profits for stock-based compensation (SBC), but we prioritize GAAP operating margin because SBC is a real expense used to attract and retain engineering and sales talent. This is one of the best measures of profitability because it shows how much money a company takes home after developing, marketing, and selling its products.
Looking at the trend in its profitability, Semrush’s operating margin rose by 11.3 percentage points over the last year, as its sales growth gave it operating leverage. Its operating margin for the trailing 12 months was 2.6%.
Final Judgment
These are just a few reasons why we think Semrush is a great business. After the recent drawdown, the stock trades at 4.1× forward price-to-sales (or $11.91 per share). Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
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