Teradata Stock Analysis: You Should Be Waiting, Not Buying

Are you on the hunt for hot tech stocks? Are you bullish about cloud computing and artificial intelligence? That’s understandable, and Teradata (NYSE:TDC) certainly fits into these technology sectors. However, even though Teradata stock is down in 2024 so far, the right strategy is to just watch and wait for more information.

I’m not saying that there’s a lack of information about Teradata; as we’ll see, there’s plenty of data to study. The problem is that, even after a share-price drawdown, Teradata could still be overvalued.

Besides, the company isn’t demonstrating growth in several key financial areas. I’ll delve into the details of that, but first let’s start off with some good news concerning Teradata.

Teradata’s Crucial Connection With Amazon

Teradata describes itself as offering the “most complete cloud analytics and data platform for AI.” Furthermore, the company helps business clients to “enable more confident decision-making” as they navigate the complex world of AI-enhanced cloud computing.

While I’m not bullish about Teradata stock right now, I must admit that the company’s business model is timely in the 2020s. Without a doubt, plenty of companies will need assistance with integrating AI-cloud applications and workloads.

On that topic, Teradata has an arrangement with Amazon’s (NASDAQ:AMZN) cloud-computing platform, Amazon Web Services. Specifically, Teradata will help AWS to “support customers as they migrate to the cloud, accelerate the modernization of their data analytic ecosystems and maximize the value of artificial intelligence opportunities.”

I’d assess this collaboration as a huge win-win for both companies, and especially for Teradata. After all, it’s hard for a company to lose when it’s working with the almighty Amazon. But wait — don’t buy Teradata stock yet, as there’s data to pore over and some of it isn’t particularly encouraging.

Teradata: Rich Valuation but No Revenue Growth

First and foremost, I must address Teradata’s relatively high valuation. On a trailing 12-month basis, Teradata has a price-to-earnings ratio of 76.51x. For comparison’s sake, the sector median P/E ratio is 30.73x.

This is a textbook example of how a stock can be down year-to-date but this doesn’t mean that it’s a bargain. Moreover, it would be difficult to argue that Teradata is a screaming bargain if the company isn’t showing top-line or bottom-line improvement.

To analyze this topic, we can look at Teradata’s first-quarter 2024 financial results. Teradata’s total revenue declined 2% year over year to $465 million.

In addition, the company’s GAAP-measured diluted earnings decreased from 39 cents per share in the year-earlier quarter to 20 cents per share in Q1 of 2024.

It’s also troubling that Teradata’s free cash flow retreated from $105 million in the year-earlier quarter to just $21 million in this year’s first quarter. The data just doesn’t bode well for Teradata.

Teradata Stock: The Waiting Is the Hardest Part

It may be tempting to invest in Teradata today after you’ve learned about the company’s arrangement with Amazon. Yet, Teradata’s first-quarter financial stats indicate that the company isn’t improving in certain key areas.

Hopefully, Teradata’s next quarterly financial report will show progress in these areas. That remains to be seen, though. For now, Teradata appears to be fully valued, at least when using the company’s trailing P/E ratio as a gauge.

Thus, the risk-to-reward proposition isn’t great for prospective Teradata investors right now. The prudent move, then, is to just wait. If the company clearly demonstrates financial progress during the next quarter or two, then it will be time to consider buying Teradata stock.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.