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Buy Slack Technologies Stock As It Begins Bouncing Back

Slack stock spiked in June as remote work peaked, but that brought concerns about much larger competitors

Slack Technologies (NYSE:WORK) has been an interesting case in 2020. Slack has been a poster child for remote work during the novel coronavirus pandemic, and widespread adoption helped to drive Work stock to big gains by early summer.

A Slack (WORK) sign on the company's headquarters in San Francisco, California.
Source: Sundry Photography / Shutterstock.com

But that success raised fears of competition. Combined with concerns that small companies could slash IT spending, that fear led to WORK sliding. Add in the broader tech sector selloff in early September, and WORK is now back down to May-level pricing.

Slack stock gets a Portfolio Grader “B” rating. It’s not perfect, but this is a pretty solid company with good long-term growth prospects. Is this the time to scoop up shares for your own portfolio?

Working From Home Could Become Permanent

Slack stock had been on a downward trajectory after its IPO in 2019.

After hitting an all-time high of $37.50, WORK slid significantly, closing as low as $20.46 in the fall. 2020 and the pandemic reinvigorated Slack. Although it dropped below $20 during the worst of the March market chaos, WORK quickly recovered and then began climbing. It closed at $35.05 on May 29 — a gain of 106% from March and 58% year to date.

The catalyst for that growth , of course, was the pandemic and associated lockdowns. As companies sent employees out of the office to work from home, tools were needed to ensure those remote workers remained in touch and continued to collaborate. Exactly the need Slack had been designed for.

What really helped to propel Slack stock was the growing feeling that working from home would become the new normal. Employees liked it, employers were largely impressed with the productivity and looking at the potential cost savings of reducing their office space requirements.

Phillip Kim is a Professor of Social Innovation at Babson College. In an interview, he noted the likelihood that this trend could continue well into the future, saying:

“once the light at end of the tunnel becomes more apparent, companies have the opportunity to assess how well this experiment worked for them and many will probably continue some form of remote working.”

Demand Breeds Competition

The rise in demand and potential permanency of remote work is good for Slack, but it also brings a big challenge: competition. When a $1.57 trillion dollar technology behemoth with the world’s most popular productivity suite has its own integrated tool for supporting remote workers, that’s a problem.

In June, Goldman Sachs downgraded Slack stock for just that reason. 

In addition, Slack has a heavy presence among smaller companies. Many of these customers are feeling the financial impact of the pandemic more quickly than large enterprise customers. That factor came into play when the company reported second quarter revenue earlier this month. The company’s CFO spoke to this issue during the earnings call (via ZDNet):

“We price on a per seat basis. And when our customers downsize, freeze hiring or hire more slowly, net dollar retention is negatively impacted. That impact is direct. And because of our fair billing policies and the substantial number of smaller customers on monthly plans, it shows up much more quickly than it would for others in our industry.”

Bottom Line on Slack Stock

It can be a little difficult to read the tea leaves on Slack stock at this point. 

On the plus side, the work-from-home movement that was kicked off by the pandemic is showing signs of becoming a permanent way of life for many employees. That works very much in favor of solutions like Slack, that help to keep remote team members looped in. 

However, the rapid growth of that market has attracted big competition, and that is working against Slack Technologies. Competition was the reason behind the downgrade Slack received from Goldman Sachs back in June. In addition to the competition, Slack also faces headwinds from companies that are striving to cut costs as the pandemic eats into their bottom line. Paying for collaboration software — when a similar feature may be baked into the productivity suites they are already paying for — becomes an even tougher sell.

Analysts tracked by The Wall Street Journal who follow Slack Technologies have mixed feelings. The consensus rating for WORK is overweight, but the split between buy and hold is a narrow one. The average 12-month price target of $31.10 does offer 14% upside.

Given all the variables at play, Slack stock isn’t without risk, but that seems moderate at this point. There’s a good chance WORK will continue to offer at least modest long-term growth potential, especially for investors who snap up shares now, before it recovers from the early September tech sector selloff. 

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.


Article printed from InvestorPlace Media, https://investorplace.com/2020/09/is-slack-work-stock-a-buy-as-it-begins-to-regain-ground/.

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