Is Asana Stock a Buy After Delivering Encouraging Q4 Results?

Stocks to sell

In March, Asana (NYSE:ASAN) reported fourth-quarter results that were encouraging and impressive in some ways. And as I pointed out in a previous column on ASAN stock, the company’s “work management” software has gotten many excellent reviews online. Also positive for the name are the sizeable purchases of the company’s shares by its CEO earlier this year.

Still, Wall Street is unlikely to embrace Asana anytime soon, given its large, mounting losses and the high valuation of its shares. Another factor likely to weigh on the name going forward is the bearish stance that multiple Wall Street analysts have taken toward it.

The Positive Aspects of Asana’s Q4 Results

On March 9, Asana reported that its sales had surged 64% year-over-year in Q4. The company also noted that, during its full fiscal year, its revenue growth had accelerated to 67%.

“Our fiscal year revenue growth accelerated versus the previous year, led by strength in the enterprise and strong demand across the customer base,” explained Asana CEO Dustin Moskovitz in a statement. 

Moreover, in Q4, “The number of [Asana’s] customers spending $50,000 or more on an annualized basis … grew to 894, an increase of 125% year over year,” the company reported.

And Moskovitz’s decision to purchase over $1 billion of ASAN stock from June 2021 to Feb. 2, 2022 certainly indicates that he’s very confident in the outlook of both the company and its shares.

The Downside: Profits, Valuation and Analysts

At a time when many investors are much more worried about companies’ bottom lines than they have been in some time, Asana is going backwards in that area. Specifically, last year the company’s free cash flow dropped to -$87.6 million  from -$76 million during the prior 12-month period.

On the valuation front, ASAN stock is changing hands for 8.7 times its trailing revenue, making it very expensive.

Meanwhile, multiple Wall Street analysts have issued very bearish notes on Asana in recent months.

For example, on March 10, JPMorgan lowered its rating on the shares to “underweight” from “neutral.” Among the reasons for the downgrade were valuation and the company’s falling margins.

While Asana is growing rapidly and appears to have a strong product, the company’s losses are increasing, and its valuation remains excessive. Consequently, investors should stay on the sidelines when it comes to ASAN stock.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.

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