Up 300% in 2021, is This Software Stock Still Worth Buying?

This leading work management platform provider, based in San Francisco, had an impressive stock market debut in September 2020, going public via a direct listing. On July 21…

Asana, Inc. (ASAN – Get Rating) announced that its Asana app for Zoom is now available in the Zoom App Marketplace, which hosts more than 1400 essential tools to boost productivity and collaboration. The stock has gained 304.4% in price year-to-date to close yesterday’s trading session at $119.49, due primarily to increasing demand for remote working solutions.

The shares also soared to hit their 52-week high of $122.08 on September 21, 2021, mainly because Jefferies analyst Brent Thill raised his  price target to $115 from $90.

However, ASAN faces stiff competition from players such as Atlassian Corporation Plc (TEAM) and Smartsheet Inc. (SMAR). Moreover, ASAN’s losses widened in the second quarter, and the company could continue to report losses in the coming quarters. So, ASAN’s near-term prospects look bleak.

Here’s what could shape ASAN’s performance in the upcoming months:

Top Line Growth Doesn’t Translate into Bottom Line Improvement

For its fiscal second quarter, ended July 31, 2021, ASAN’s revenue surged 72% year-over-year to $89.48 million. The company’s total liabilities decreased 38.7% sequentially to $456.24 million. However, its non-GAAP operating expenses for the quarter increased 63.9% year-over-year to $118.36 million. In comparison, its non-GAAP operating loss came in at $38.6 million, representing a 41.9% year-over-year increase. Its non-GAAP net loss was $39.80 million, representing a 51.3% year-over-year increase.

Disappointing Management Guidance

ASAN expects its revenues to be between $93 million – $94 million for its  fiscal third quarter, representing year-over-year growth between 58% – 60%. However, the company expects a non-GAAP operating loss of between $49 million – $47 million. Also, it expects a non-GAAP loss per share to be between $0.27 – $0.26.

Stretched Valuation

In terms of forward EV/S, ASAN’s 57.93x is 1,359.9% higher than the 3.97x industry average. Likewise, its 61.20x forward P/S  is 1,408.7% higher than the 4.06x industry average. Also,  the stock’s 133.07x P/B is 1,960.9% higher than the 6.46x industry average.

POWR Ratings Reflect Bleak Prospects

ASAN has an overall D rating, which equates to a Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. ASAN has a…

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