Zacks upgrades Freshworks to strong buy amid earnings momentum and analyst optimism

Zacks Research has upgraded Freshworks Inc. to a strong-buy rating, citing improving earnings estimates and positive analyst sentiment despite ongoing profitability challenges, signalling a potential rally for investors.

Zacks Research recently upgraded Freshworks Inc. (NASDAQ: FRSH) from a hold rating to a strong-buy rating. This significant upgrade, announced on Monday, reflects growing confidence in the company’s earnings prospects. The upgrade is largely driven by an upward trend in earnings estimates, a primary factor that Zacks takes into account when issuing its rankings. The Zacks rating system relies on monitoring changes in earnings per share (EPS) estimates for both the current and following years, compiled from sell-side analysts through the Zacks Consensus Estimate. This approach helps investors identify companies with improving earnings momentum, which often translates into near-term stock price appreciation.

Freshworks, a software-as-a-service company known for its customer service and engagement tools, has recently demonstrated robust growth. In its latest quarterly report, the company reported EPS of $0.18, surpassing analyst expectations by $0.06, alongside revenues of $204.68 million, exceeding forecasts. This marked a year-over-year revenue increase of 19.6%, evidencing strong business performance. However, the company still posted a negative net margin of 7.02% and a negative return on equity of 2.56%, highlighting ongoing profitability challenges despite top-line growth. Freshworks has set its fiscal year 2025 EPS guidance between $0.56 and $0.58 and its third-quarter guidance between $0.12 and $0.14, with analysts collectively expecting a loss of $0.19 EPS for the current year.

The upgraded rating by Zacks follows a pattern of increasingly positive analyst sentiment towards Freshworks. Previous ratings ranged from moderate buy to buy, with price targets varying between $13 and $27. Firms such as Needham & Company and Piper Sandler have revised their price targets upward recently, reflecting optimism about the company’s prospects. Despite the positive momentum, the stock has faced volatility, with a 52-week trading range between $10.81 and $19.77, and it ended Monday’s session at $11.47. The market valuation stands at approximately $3.34 billion, with a beta of 0.91 indicating moderate volatility relative to the broader market.

Insider activity shows notable share sales by company directors in recent months, with Director Zachary Nelson selling over 8,400 shares and Director Jennifer H. Taylor divesting nearly 4,700 shares. These transactions, disclosed through SEC filings, suggest some reduction in insider holdings, though insiders collectively own around 11.17% of the company’s stock. Institutional investor interest remains significant, with hedge funds and asset managers increasing their positions. Notable institutional buy-ins include BNP Paribas Asset Management and EverSource Wealth Advisors, highlighting continued confidence from large market participants.

Overall, Freshworks appears positioned for growth bolstered by improving earnings trends and favourable analyst sentiment. The Zacks upgrade to a strong buy adds weight to the stock’s appeal as a portfolio addition, particularly for investors focused on companies demonstrating upward earnings estimate revisions. The company’s ongoing challenge will be to translate revenue growth into sustained profitability, but the current landscape offers an encouraging outlook for investors willing to navigate a still-developing story.

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Source: Noah Wire Services