Challenging Outlook for CS Disco: Underperformance and Competitiveness Concerns Lead to Sell Rating

Bank of America Securities analyst Koji Ikeda reiterated a Sell rating on CS Disco (LAW – Research Report) today and set a price target of $6.00.

Koji Ikeda’s rating is based on a combination of factors influencing CS Disco’s financial performance and market positioning. Despite achieving revenue that surpassed general expectations, the company still fell short of its own projections, and its adjusted EBITDA, while better than expected, remains negative. The company’s current growth and profitability metrics are lagging behind its small-cap software peers, with revenue growth projected to be significantly lower and EBITDA margins still not positive, which raises concerns about its competitiveness and market standing.
Another point influencing the Sell rating is the company’s net revenue retention rate, which, although improved, is still below 100%. This indicates that revenue growth is heavily dependent on acquiring new customers rather than expanding existing accounts. Although there is progress in customer growth, especially among large clients, and management has set a break-even EBITDA target for the end of 2026, these factors are not enough to alleviate concerns in the short to medium term. Consequently, the stock’s valuation at a discount to peers reflects these challenges, reinforcing the underperform rating given by Ikeda.

Based on the recent corporate insider activity of 47 insiders, corporate insider sentiment is negative on the stock. This means that over the past quarter there has been an increase of insiders selling their shares of LAW in relation to earlier this year.