Elastic (ESTC): Revisiting Valuation After Earnings Beat, Upbeat Guidance, and Positive AI Momentum

If you’re watching Elastic (ESTC) these days, you know the latest quarterly update has made waves with investors. The company posted stronger revenue and narrower net losses compared to last year, topping consensus expectations and signaling more than just a one-off win. Management’s upbeat guidance for both the next quarter and the full fiscal year points to double-digit growth ahead. The core message remains clear: Elastic is leaning hard into AI and data observability. As market excitement bubbled over, shares climbed in anticipation, and the upbeat sentiment increased further after a key competitor delivered impressive results of their own.

Putting this move into context, Elastic’s share price has seen its fair share of turbulence this year. The stock is still down 15% over the past year and off 11% year-to-date. Momentum, though, has shifted more recently. Shares rose nearly 7% in the lead-up to earnings and are up 9% over the past three months. These swings reflect both ongoing questions about competitive pressures and optimism that Elastic’s AI and cybersecurity push could be gaining traction with large enterprise customers.

With expectations reset and management’s outlook sounding more confident, investors may be considering whether this is a window to pick up shares at a discount, or if the market is already factoring in all the potential upside from future growth.

Most Popular Narrative: 19.2% Undervalued

According to the community narrative, Elastic is currently viewed as significantly undervalued by analysts, with a fair value estimate that is almost 20% higher than its recent trading levels. This assessment is based on expectations of high growth and margin improvements fueled by the company's expansion into AI and serverless technologies, discounted at a rate of 8.1%.

Elastic's focus on generative AI (GenAI) applications and enabling search innovations, such as Retrieval Augmented Generation (RAG), positions them as a key player in new AI-driven workflows. This is likely to boost future revenues as the sector grows. The company’s strategic changes in field segmentation and renewed focus on enterprise and high-potential mid-market customers have improved sales execution, indicating potential revenue and earnings growth from increased customer commitments and better sales efficiency.

Think the only story here is hype? Consider a deeper look. The positive valuation is supported by bold growth forecasts and a future profit multiple that is attracting significant attention in the tech sector. If you’re interested in the specific numbers that have analysts optimistic, and what factors could move shares beyond the current consensus, the key drivers—and the challenges that could affect this narrative—lie just beneath the surface.

Result: Fair Value of $108.65 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, persistent sales execution hiccups or sluggish growth in the small-business segment could quickly temper optimism and challenge this undervalued outlook.

Find out about the key risks to this Elastic narrative.

Another View: What Does Our DCF Model Say?

While analyst price targets suggest that Elastic is undervalued, our DCF model arrives at a similar conclusion by valuing future cash flows. However, every model has its flaws, and subtle risks could potentially tip the balance.

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Elastic for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Elastic Narrative

If you see things differently or want to dive deeper into the details, you can easily craft your own perspective based on the latest figures. Do it your way.

A great starting point for your Elastic research is our analysis highlighting 3 key rewards and 1 important warning sign that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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