Monday.com (MNDY  ) is an Israeli cloud computing company that builds work management software for businesses. The company has had a strong debut as its pre-IPO price was expected to be $155, but it actually opened at $177. Since then, the stock has continued trending higher and is now more than 50% above its pre-IPO price.

This gives the company a valuation of $10.2 billion and is also an indication that the environment for growth stocks and new issues is also improving after hitting a rough patch from February to May. Monday.com went public through a direct listing which doesn't come up with lockup periods and saves the company money as it doesn't have to hire investment bankers to drum up interest.

Company Profile

Monday.com was founded by Roy Mann, formerly an executive at Wix (WIX  ). The software started as a tool that he developed to manage his and his department's workflow and tasks in 2014. Slowly, they kept building and adding more features and functions. By 2017, it had gained significant traction and was valued at $550 million as it was expanding internationally.

By 2019, the company had achieved a valuation of $1.9 billion and slightly pivoted to more of a customizable work platform rather than software. Since the software is so customizable and adaptable, it's used by all sorts of companies such as hospitals, manufacturing, and hotels.

The company had $106 million in revenue in 2020, a 106% increase from the previous year. The company is anticipating $236 million in revenue for 2021. Like many cloud-based companies, it saw a surge in use during the pandemic.

Stock Price Outlook

While investors currently seem enamored of the company's revenue growth, it's important to acknowledge that multiples are steep. Buyers at these levels are assuming that it will be able to maintain this growth rate for the next few years and then be able to turn on the "earnings faucet."

However, one complication to this is that the company faces numerous competitors. Additionally, it's spending money to attract new customers, and this is likely to be the case for the foreseeable future as the software lacks many of the "network effects" and flywheel effects that animate other types of software businesses.

So, while Monday.com is a compelling business by many factors, it's not a buy due to its valuation especially as it faces significant competition.