It seems like businesses are popping up all over the place with cloud-based offerings. Coupa Software (NASDAQ:COUP) is part of that ongoing trend, and traders have jump all over COUP stock in an apparent bidding war.
The spread of the novel coronavirus took the already red-hot cloud-computing niche and pumped it up to new heights. Coupa’s angle within this trend is that the company offers cloud-based spend-management software for businesses.
It seems as if traders are getting a bit “cloud crazy” and might be getting ahead of themselves. The facts surrounding Coupa might not be sufficient to warrant the steep run-up in the share price. Sure, the COUP stock price could push higher, but that wouldn’t necessarily mean it’s a justifiable or sustainable move.
A Closer Look at COUP Stock
Indeed, the price action in COUP stock would suggest that this company is the greatest thing since sliced bread. It was trading below $30 per share in 2016, but by early 2020 COUP shares were above the $160 mark.
There was a slight dip resulting from the coronavirus crisis, which is understandable since the broader market took a dive. The bounce back in COUP stock has been nothing less than spectacular. In a practically vertical move, the stock shot up above $250 by the middle of June.
Is the company really well enough to substantiate this sharp price move? We can delve into the facts and data in order to make a more informed decision about COUP stock.
Noting the Negative Numbers
By the time Coupa reported its first-quarter fiscal data, the company’s shares were up 51% for the year. That sounds a lot like the trading community was front-running a blockbuster earnings report. Did they get what they had hoped for?
Not quite. Apparently, traders were displeased upon receiving the earnings data as they pushed the COUP share price down 4% after hours. Perhaps they weren’t impressed with Coupa’s $14.8 million quarterly net loss, which amounts to 23 cents per share.
Some folks might choose to view the glass as half-full in this scenario. They could point out that the quarterly net loss was an improvement over Coupa’s net loss of 34 cents per share, or $20.5 million in total, during the same quarter of the previous year.
That line of thinking might be wrongheaded, though. A more practical perspective would be to simply observe that Coupa’s had two consecutive first quarters of net losses. It’s hard to find real value in a company that’s posting losses when it should be reporting gains.
Thus, Coupa’s trailing 12-month earnings per share comes out to -$1.34. That’s not extremely negative with a $250 stock, but it leaves doubt as to whether the stock ought to be $250 in the first place.
Expectations Run High
Against the backdrop of negative net earnings, it would make sense for Coupa’s leadership to maintain muted expectations. After all, setting high targets can lead to disappointment in forthcoming earnings releases.
And that disappointment, in turn, could induce stock-price declines. Regardless, Coupa CFO Todd Ford delivered guidance that could best be described as highly ambitious.
Specifically, Ford modeled total revenue in the range of $118 million to $119 million during the second quarter. And Ford expects not just a great quarter, but a darned good year to boot:
“For the fiscal year ending January 31, 2021, we expect total revenues of $489 million to $491 million. This includes subscription revenue of $442 million to $444 million and professional services and other revenue of approximately $47 million.”
Is it possible that Coupa is overselling the cloud craze, or even buying into its own hype? Moreover, is Ford’s prediction pricing in the assumption of a massive recovery in the American business sector?
Maybe, or maybe not. Either way, the collective judgment of long-side COUP stock traders (warning: pun coming) might be “clouded” by the mad rush towards anything and everything tangentially involved in the remote-work software niche.
The Bottom Line
The future remains “cloudy” (there we go again) for Coupa as the company has posted another quarter of negative net earnings. As for COUP stock, an outstanding quarter and year have already been assumed, leaving ample room for disappointment and imminent share-price depreciation.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.