When a stock continues to grow and seems to contain only good news, that’s exactly the time when it’s tempting to just ride the bull thesis to Valhalla. That’s not how responsible investors think about a position that consistently shows strength. You should always be most critical of the companies you are most optimistic about. Speaking of which, perhaps no one was more critical of Samara (IOT) then Spruce point capital which made a plethora of accusations, including difficulty securing major deals, an overly hardware-focused business model and “opaque and manipulative” financial reporting.
It’s been two years since the short report, and its merits seem to have disappeared. In terms of big deals, we can see that Samsara is moving in the right direction, with an increasing percentage of sales coming from larger customers.
The claim that Samsara is a “material hardware company” has been refuted by management, which reiterated that subscriptions make up the vast majority of revenue. We noted in last year’s piece that the company includes hardware costs in its overall revenue figures, so this is a moot point. Finally, nothing ever came of the malicious financial reporting claims. After two years, the SEC has had no more issues with Samsara, so we feel comfortable finally putting this short report to bed.
As always, we expect our disruptive growth stocks to grow, which means they are disruptive. And Samsara’s growth continues.
Samsara shows growth and profitability
The company’s latest guidance for fiscal year 2026 (Calendar 2025) indicates a turnover growth of 28%. Although a slight slowdown from the previous year, the strength and consistency of Samsara’s growth is impressive.
When looking for Samsaras Netc Retence Rat (NRR) in their latest Investor Deck it was nowhere to be seen. Instead, it’s in Samsara’s quarterly magazine letter from the shareholders. Management also touched on it during the last earnings call, saying, “As a result of our strong multi-product adoption, we achieved our targeted dollar-based net retention rate of approximately 115%.” SaaS Capital reported that the median NRR for B2B SaaS companies as of 2023 was somewhere between 100 and 110%. Samsara’s 115% therefore seems strong, and has remained consistent since the end of 2023. Fiscal 2025 where it was “about” 115% for core customers and 120% for large customers. A strong and stable NRR means that Samsara has been able to effectively up- and cross-sell new products to its current customers.
Samsara’s Q3 2026 results also showed the company’s first-ever quarter of GAAP profitability. While we don’t expect our disruptive tech stocks to be profitable, it’s nice to see that Samsara can do both: grow and make profits. Management says the growth was driven by international expansion, new public sector deals and new “emerging products,” as well as strength in the construction sector, which “was their largest sector in terms of net new ACV mix for the ninth quarter in a row and is clearly a direct beneficiary of the AI expansion.” (“Net New ACV Mix” essentially means all new sales, existing sales and lost sales.) Speaking of AI, and who isn’t?
Samsara relies on AI
Samsara’s latest earnings call talks about using their “vast data assets and AI to deliver actionable insights” that save customers money. The entire IoT thesis revolves around generating valuable data that comes from connecting and tracking assets. This kind of value can be realized after data accumulates over time. The longer a customer uses the Samsara platform, the more useful insights can be gained. Getting a customer on the platform is initially an easy sell when it comes to increasing driver safety.
The company has recently been put together Safety report shows that AI-enabled fleets can reduce accident rates by 75% in less than three years, meaning their software essentially pays for itself.
Following this report, Samsara announced a slew of new “AI tools,” which the company says will help fleet managers move from “responding to incidents to proactively preventing them.” These tools can do cool things like assess the risk surrounding a “safety event” and automatically notify the driver’s manager if the event is considered “high risk.”
One question we have is to what extent autonomy becomes a threat to Samsara’s value proposition of reducing accidents for human drivers. When there is autonomy, the value proposition must shift. Perhaps they can address shortcomings like the traveling salesman problem, or focus on asset tracking, which they have already started.
Samsara management recently commented on the company’s largest-ever asset tag deal with a “world leader in chemical solutions for the oil and gas industry,” which led to 400% year-over-year growth in that segment. According to Samsara, an asset tag is an IoT hardware device that can track the location or status of equipment or the amount of chemicals. Unfortunately, 400% annual growth means nothing without knowing the revenue base, but these are exciting use cases nonetheless. Think of all the possible assets a large company could have that could be tracked and outfitted with sensors to provide “information at the edge” that could be fed into a real-time analytics tool like Confluent (CFLT). These ‘new frontiers’ are how the company can continue its strong growth into the future.
High gross margins, a hint of profitability and sustained growth are ingredients that often lead to a high valuation.
Valuation of Samsara shares
To value a disruptive growth stock, we use our Simplement vvaluation Ratio (SVR) where the market capitalization is taken and divided by the annual turnover. This provides a benchmark for companies that are more focused on capturing market share than maximizing profits. Below you can see Samsara’s SVR plotted over time.
With a current SVR of 16, Samsara is below our target SVR of 17, which is simply the average of the last four quarters. As the company becomes more profitable, there comes a time when we can also look at earnings-based ratios. Until then, gross margins are a good indicator of potential future profitability. The chart below shows these are trending in the right direction, stabilizing in the high 70s, alongside a nice upward trend for operating margins.
Looking at how much capital we have allocated to this position, it looks like we are at about 90% of a max position, so we could top it up at this valuation. If we do, we will mention this in the Analyze the market openlyan email now sent to paying subscribers every trading day, presenting useful information succinctly.
TAM and competition
In their recent earnings call, Samsara shared that “about half of new bookings in a given period” come from new logos and the remaining about 50% come from expansions. With over 20,000 customers, at some point the new logos will wane and existing customers will be the main source of new revenue growth. Its telematics capabilities were valued at approximately $50 billion at the time of their 2021 IPO and have – according to the company – doubled since then as they look abroad for additional capabilities and internally for additional products. We remain hopeful that the company will provide more granularity in revenue reporting so we can see the progress being made beyond just connected fleet management.
Whether the opportunity is worth $50 billion or $100 billion, Samsara has still only captured a fraction of it. This means plenty of room for further expansion, although we must also take into account that market share is being captured by the competition. We looked last year 4 Telematics shares cheaper than Samsara shares and concluded that “Samsara stock appears to be the gold standard of platinum-priced telematics stocks.”
This is still the case today. Samsara’s largest public competitor, Powerfleet (I WILL), is a fraction of their size with a market cap of $700 million. Powerfleet’s revenue growth is weaker, but still strong, with an expected 21% for the current fiscal year. While Powerfleet’s SVR of just 1.6 seems attractive, we’ve found that investing in a leader is usually worth the higher price tag. While there may be enough blue ocean TAM for everyone, the key players will inevitably clash. Samsara’s future growth may also come from displacing their weak competitors, some of which remain private and therefore not very visible.
Conclusion
Samsara continues to prove that the IoT growth story is promising, and now they will use all the data collected by IoT endpoints and sensors to develop even better products and functionality powered by AI. The company’s continued growth and earnings trajectory are promising, and there doesn’t seem to be anything alarming about where we are today, aside from their rich valuation.
Samsara’s data advantage should improve retention. The longer customers stay on their platform, the more valuable it becomes. While we don’t get gross retention rates, it seems like the platform is sticky. Moving beyond fleet management increases the opportunity to drive continued growth. Overall we can’t find many faults with Samsara and we will come back in a year to make sure everything goes well.
#find #fault #Samsara #stock #Nanalyze