- Asana (ASAN) stock is up more than 10% on May 19 on heavy volume.
- Investors continue to nibble at ASAN stock.
- Aggressive investors ought to consider why there’s still interest in Asana.
Investors are all over Asana (NYSE:ASAN) in May 19 trading. As I write this, ASAN stock is up more than 8% with high volume.
InvestorPlace’s Larry Ramer recently recommended that investors not buy Asana despite the project management software company delivering encouraging fourth quarter 2022 results.
While it’s easy to point to Asana’s ongoing losses and say it’s a dog with fleas. However, investors continue to fill the sell orders coming their way despite these losses. That says that there is still plenty of interest in the company despite bleeding plenty of red ink.
I would not recommend anyone other than the most aggressive investors consider buying Asana stock at this point. However, if you are aggressive by nature, you might want to ask yourself why buyers are stepping up.
It might just be because Asana’s a diamond in the rough.
| ASAN | Asana | $20.83 |
The Dark Side of ASAN Stock
My colleague highlighted the good and bad about Asana. For this section, I will focus on the negative aspects of his review.
First, Ramer didn’t like that its free cash flow (FCF) in fiscal 2022 was -$87.6 million, $11.6 million higher than 2021. Secondly, it was trading at 8.7x the trailing 12-month sales. Lastly, my colleague didn’t like the fact JPMorgan (NYSE:JPM) cut Asana’s rating to “underweight” in March, suggesting valuation and falling margins were the cause.
Here’s the other side of that argument.
Asana’s latest proxy lists 18 companies that it considers peers. One of them is Anaplan (NYSE:PLAN). Anaplan currently trades at 15.9x sales, almost double Asana. Anaplan’s FCF in fiscal 2022 was -$25.3 million, up from -$10.5 million in 2021. Lastly, of the 12 analysts covering Asana, 11 rates it a “Buy,” “Overweight,” or “Hold.”
Only JPMorgan appears to be pessimistic about the company. The analysts’ average target price is $52.83, more than double its current price.
It’s Growing Much Faster Than It’s Burning Cash
Over the past two years, Asana burned through $177 million in cash. At the end of January, it had $312 million in cash, down from $385 million in 2021. Based on this cash burn, it’s got at least three years before cash becomes an issue. In addition, it has just $35 million in long-term debt.
If it continues to grow sales by 30 – 40% a year for the foreseeable future, investors might find that it can deliver profitable growth without running out of cash. That’s what current buyers are thinking about as they execute their trades.
And, as my colleague said, CEO Dustin Moskovitz’s purchase of more than $1 billion of ASAN stock between June 2021 and February 2022 isn’t chump change, even for the billionaire, 14x over.
The Bottom Line
I’ve had the opportunity to work on Asana with several freelance clients in the past, and I was never a big fan of its cloud-based software.
That said, the 15,437 customers spending more than $5,000 annually and 894 spending $50,000 or more can’t all be wrong about Asana’s utility.
Down 68% year-to-date, if you’re an aggressive investor, you’ve got to be wondering why ASAN is up more than 8% over the past week.
Could it be that the smart money smells a bargain? I think so.
On the date of publication, Will Ashworth 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.
