Monday.com's Rally: A "Buy the Rumor" Move Ahead of a Guidance Reset?

Monday.com's recent rally is a classic case of a stock moving on strong past performance while the market prices in a more cautious future. In the latest session, the stock climbed 2.07% to $149.95, a move that stood out against a slumping S&P 500 down 0.34%. This outperformance, however, is happening against a backdrop of broader weakness, with shares down 9.6% over the past month. The setup is clear: the market is rewarding the company for a solid third quarter but is now being warned about the path ahead.

The core expectation gap lies between what was delivered and what is now forecast. The company's Q3 revenue of $316.86 million was a strong beat, confirming operational execution. Yet, its forward guidance for the current quarter is a reset. The issued Q4 revenue range of $328 million to $330 million comes in below the consensus estimate of $328.99 million. This gap between the whisper number and the print is the market's new focal point.

Viewed through the lens of expectation arbitrage, the rally looks like a "buy the rumor" move on the Q3 beat. The stock is catching up to its own strong performance. But the guidance reset-citing longer sales cycles and a sharper focus on large enterprise accounts-is the reality check. It signals that the easy growth phase may be slowing, as the company trades faster SMB deals for more complex, longer-cycle enterprise contracts. The market is now pricing in this bumpier path, which explains the underperformance relative to the broader tech sector despite the daily pop. The strong quarter is priced in; the softer guide is the new reality.

The Enterprise Pivot: A Double-Edged Sword

Monday.com's strategic shift to enterprise is the central catalyst for its long-term growth narrative, but it is also the source of its immediate execution risk. The company is trading faster, lower-margin sales to small and medium businesses for more complex, higher-value deals with large enterprises. This pivot is a double-edged sword, where the long-term potential for larger, stickier revenue is weighed against documented near-term headwinds.

On the positive side, the company's customer base shows strong fundamentals that support the upmarket play. It boasts a net dollar retention rate of 111%, a clear signal of deep customer satisfaction and expansion within its existing base. More importantly, it has built a substantial cohort of larger clients: 3,993 customers over $50k in annual recurring revenue. This concentration provides a foundation for scaling into enterprise, where deals are bigger and more predictable.

Yet the transition is proving costly in the near term. The company's own guidance reset explicitly cites longer sales cycles as a key reason for the softer outlook. Enterprise deals simply take more time to close than SMB contracts. This creates a classic expectation gap: the market is now pricing in a slowdown in sales velocity even as the company builds its future revenue pipeline. The strategy is sound for sustainable growth, but the execution is a clear headwind to quarterly results.

The bottom line is that the enterprise pivot is a bet on future margin and scale, not immediate top-line acceleration. The strong retention and large customer base validate the direction, but the longer cycles mean the company must manage expectations carefully. For investors, the setup is one of delayed gratification: the stock may continue to face pressure as the sales funnel lengthens, even as the underlying business strengthens for the long haul.

Valuation and Relative Performance: What's the Market Discounting?

The stock's recent volatility and stark underperformance tell a clear story: the market has been discounting a reset in expectations for months. Over the past year, Monday.com has delivered a return of -31%, a dramatic underperformance against the S&P 500's +19% growth. This isn't a new trend; shares have continued to slide, depreciating by 9.6% over the past month while the broader market and its sector posted gains. The rally yesterday was a minor pop in a long downtrend, highlighting the persistent pressure.

The key risk factor now is the projected decline in earnings power. For the current quarter, analysts expect EPS to drop 15.74% year-over-year. This projected drop is a direct consequence of the enterprise pivot, where longer sales cycles and a shift in deal mix are pressuring near-term profitability. The market is pricing in this headwind, which explains the stock's sustained weakness.

So, has the expectation gap been fully reflected? The valuation metrics suggest a partial reset, but not a complete one. The stock trades at a Forward P/E ratio of 29.61, still a premium to its industry average of 25. This implies the market still sees growth potential, likely tied to the long-term enterprise strategy. However, the PEG ratio of 1.07, while not extreme, indicates that growth expectations are being priced in at a rate that matches the stock's current valuation. The setup is one of cautious optimism: the worst-case execution risks from the guidance reset appear priced in, but the stock remains vulnerable if the Q4 earnings report confirms the projected EPS drop and any further slowdown in sales velocity. The market is discounting the near-term pain but is not yet writing off the future payoff.

Catalysts and Risks: What to Watch for the Next Expectation Shift

The market is now waiting for the next data point to confirm whether the enterprise pivot is a successful long-term bet or a costly detour. The immediate catalyst is the Q4 revenue print. The company has guided to a range of $328 million to $330 million, which sits just below the analyst consensus estimate of $328.99 million. A result at the top end of that range would signal the guidance reset is a temporary pause, not a trend. A miss, however, would validate the market's concern over longer sales cycles and could trigger a fresh round of expectation resets.

Beyond the headline number, the pace of enterprise deal closures will be the key operational metric. The guidance reset explicitly cites longer sales cycles as a headwind. Investors need to watch for any changes in the sales funnel. If the company can demonstrate that its pipeline of large deals is building faster than expected, it would suggest the transition is smoother than feared. Conversely, any slowdown in the closure rate of these complex contracts would confirm the near-term pressure and likely keep the stock under siege.

Finally, the stock's technical resilience will be a signal of momentum. After a 9.6% depreciation over the past month, the recent daily pop of 2.07% is a minor bounce. The critical test is whether shares can hold above key support levels. A sustained break below those levels would suggest the bearish trend is resuming, discounting the enterprise strategy entirely. Conversely, holding above these lines would indicate that the "buy the rumor" rally on the Q3 beat has legs, even as the guidance reset sets the stage for a more cautious forward view. The next expectation shift hinges on these three watchpoints: the revenue print, the sales cycle data, and the stock's technical path.