Tech stocks overall were hit hard late last month. Blame that mostly on market-wide uncertainty. However, one such name, Asana (NYSE:ASAN) has suffered a double whammy. A negative reaction to its latest earnings report has sent ASAN stock tanking a second time.
Results may have come in ahead of expectations. But with year-over-year growth slowing down, investors punished shares in the workflow management software company. On Dec 3, the day after results hit the wires, the stock fell by 26.4%.
Since then, shares have continued to move lower. This is mostly due to the factors that have put pressure on growth stocks, which are still top of mind. This may keep shares beaten down in the near term. Nevertheless, there’s no reason to head for the hills if you own it. Or, for that matter, avoid it if you don’t own it yet.
As its platform helps solve a common pain point (inefficient workflow), demand will likely remain robust in the coming years. Even as growth has decelerated quarter-over-quarter, I wouldn’t view this as a sign that its days of expanding at an above-average clip are behind it. ASAN stock is likely to bounce back once the market realizes it overreacted to its latest earnings report, so consider it a buy at today’s prices.
ASAN Stock at a Glance
What’s the latest with Asana? Obviously, the company’s most recent earnings report. For the quarter ending Oct 31, it reported $100.3 million in revenue. That was ahead of prior guidance calling for quarterly revenue of between $93 million and $94 million. Losses per share (23 cents) also came in below past projections.
To top it all off, the company upped its outlook for fiscal year 2022 (ending Jan 31, 2022). Before projecting between $357 million and $359 million in annual revenue, it now projects a top line of between $371 million and $372 million. This full-year forecast also comes in slightly ahead of current analyst consensus, which calls for around $370.86 million in revenue this fiscal year.
However, investors failed to see this as a reason to “buy the dip” with ASAN stock. Instead, they took a molehill of negative news (deceleration of revenue and billings growth), and made a mountain of it. That’s why the stock, which ahead of earnings was trading for around $91 per share, now trades for around $65 per share.
Sentiment has made a dramatic shift. Market conditions could also stay unfavorable to growth stocks in the short-term. However, now’s not the time to give up on it. Instead, buying after it’s given back months worth of gains may be the best move.
Asana: High Growth Is Still on the Menu
It may seem scary to buy ASAN stock while it’s trending lower. Yet the market’s souring on it now may be overdone. Why? On the surface, the slowdown in growth experienced quarter-over-quarter looks bad. Especially the company’s rate of billing growth, which went from 81%, to 56%, on a sequential basis.
But as Rob Oliver, a sell-side analyst at Baird, pointed out after earnings, decelerating billings growth “metrics can be misleading given the changing mix of monthly/annual subscriptions and profound impact of large deals.”
The takeaway? Investors have overreacted to the reports of a slowdown in sales and billing growth. Even if the company fails to sign-on another large deal this quarter, it’s doubtful its growth rate will see another big slide, as this misleading metric suggests. In short, there’s little reason to believe that it is on the verge of going from experiencing high double-digit growth to experiencing the muted levels of growth seen with its more mature competitors.
That’s not all. In terms of market penetration, Asana has only scratched the surface. As its software-as-a-service (SaaS) platform can tackle a variety of problems that lead to workplace inefficiency, expect to remain at above-average levels for quite some time. With a total addressable market topping $50 billion, its scaling up is not going to start stalling now, well before it hits $1 billion in annual sales.
The Verdict on ASAN Stock
After the recent plunge, the stock (which currently earns a “B” rating in my Portfolio Grader) could remain stuck for a while at or around current prices. As clouds of uncertainty still loom, investors could stay hesitant to dive into growth plays like this one. But once these clouds pass, expect Asana to be one of the beaten-down SaaS names investors will dive back into in a big way.
With a strong chance of bouncing back after the market realizes it overreacted to misleading metrics pointing to a slowdown in growth, now’s a solid time to buy ASAN stock.
— Louis Navellier and the InvestorPlace Research Staff
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Source: Investor Place