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What happened

Shares of MongoDB (NASDAQ:MDB) rose 67.4% in the first half of 2018, according to data from S&P Global Market Intelligence. The database software specialist delivered some solid quarterly reports over that span, but sometimes the stock made big moves on very little actual news.

So what

In February, the young stock moved 19% higher thanks to a single glowing analyst report. A 35% surge in March rested on MongoDB exceeding analysts’ fourth-quarter estimates across the board, but then the stock rose another 31% higher in May — on essentially no news at all.

Image source: Getty Images.

Now what

There’s a lot of promise here, but buyer beware.

MongoDB investors are still wrapping their heads around this nimble little grower, whose top-line revenues surged 49% higher year-over-year in June’s first-quarter report. The company is deeply unprofitable, making it difficult to pin a traditional earnings-based valuation on the stock.

Furthermore, MongoDB’s NoSQL database platform poses strong challenges to more traditional software for enterprise-grade data management. It’s a totally different way of thinking about data storage, perfectly suited for cloud computing support but sharply at odds with best practices developed for relational databases. That’s another obstacle on the road to a fair and stable valuation.

It may take some time for analysts and investors to work these issues out, and MongoDB remains a long way away from both GAAP (generally accepted accounting principles) and cash profits. This volatility will continue until one or more of these difficulties can reach a resolution. For now, the market tides are carrying MongoDB’s shares upward, but that could change on short notice.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends MongoDB. The Motley Fool has a disclosure policy.

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