The tech space has been recovering lately due to increasing demand for advanced technologies in almost every industry. The Federal Reserve’s decision to keep benchmark interest rates unchanged for now is also a growth catalyst for the industry. Consequently, the tech-heavy Nasdaq Composite has been hitting new highs lately. Indeed, it hit its $14,505.19 all-time high yesterday.

Investors’ increasing interest in tech stocks is evidenced by the Technology Select Sector SPDR Fund’s (XLK) 6% returns over the past month versus the SPDR S&P 500 Trust ETF’s (SPY) 1.8% gains. However, investor interest is also leading to sky-high valuations for some fundamentally weak tech stocks.

For instance, we do not believe the current valuation levels of Appian Corporation (APPN) and Asana, Inc. (ASAN) are justified by their financials and growth prospects. In fact, Wall Street analysts expect these stocks to retreat in the near term. So, it’s wise to avoid these stocks now.

Appian Corporation (APPN)

APPN offers a low-code automation platform that automates the creation of forms, workflows, data structures, reports, and other software elements. The Reston, Va. company provides its services to a range of industries, including energy, insurance, manufacturing, public sector, retail and transportation.

The company unveiled the latest version of its Appian Low-code Automation Platform on May 11, 2021. It  expands the boundaries of the low-code industry with the introduction of low-code data, and a code-free approach to unifying enterprise data. However, with the increasing number of products and services in this space, APPN’s offering might not help it in grabbing a significant market share.

APPN’s cash and cash equivalents decreased 23.1% year-over-year to $114.75 million for its fiscal first quarter, ended March 31, 2021. Its non-GAAP operating loss came in at $0.90 million, compared to $5.10 million in the prior-year period. Its non-GAAP net loss came in at $4 million compared to $8.20 million in the year-ago period. The company’s non-GAAP loss per share was $0.06 versus  $0.12 in the same period last year.

In terms of forward EV/Sales, APPN’s 27.24x is 552.9% higher than the 4.17x industry average. The stock’s 27.73x forward P/S  is 583.6% higher than the 4.06x industry average.

The company’s revenue is expected to increase 16.4% year-over-year to $354.65 million in its fiscal year 2021. However, analysts expect APPN’s EPS to decrease 142.3% in  2021 and remain negative in  2021 and 2022. The stock has lost 10.8% year-to-date to close yesterday’s trading session at $144.64. Wall Street analysts expect the stock to hit $105.60 in the near term, indicating a potential 27% decline.

APPN’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall D rating, which translates to Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting. It has a D grade for Growth, Value, and Stability.

Click here to see APPN’s ratings for Sentiment, Quality, and Momentum as well. APPN is ranked #98 of 127 stocks in the D-rated Software – Application industry.

Click here to check out our Software Industry Report for 2021

Asana, Inc. (ASAN)

ASAN, together with its subsidiaries, operates a work management platform for individuals, team leads, and executives internationally. It provides a work management platform as software as a service (SaaS) that enables individuals and teams to get work done faster, while enhancing employee engagement. ASAN is based in San Francisco.

On June 9, 2021, ASAN announced an exclusive Vimeo partnership that brings video messaging and a  suite of features to eliminate distributed work distractions and help employees find their focus. However, with remote work expected to decline to a degree in the post-pandemic world and with an array of similar products available, it’s uncertain if ASAN will see increasing demand for its offerings.

ASAN’s non-GAAP operating loss increased 39.3% year-over-year to $33.3 million for its fiscal first quarter, ended April 30, 2021. Its non-GAAP net loss increased 42.6% year-over-year to $33.80 million. Its cash flow from operating activities were negative $7.40 million compared to negative $18.20 million in the year-ago period. The company’s non-GAAP loss per share came in at $0.21, compared to $0.31 in the prior-year period.

In terms of forward P/S, ASAN’s 30.30x is 644.3% higher than the 4.07x industry average. The stock’s 30.97x forward EV/S  is 624.5% higher than the 4.28x industry average.

Analysts expect ASAN’s annual revenue to increase 49.2% year-over-year to $338.73 million in its fiscal year 2022. However, the company’s EPS is expected to remain negative in fiscal 2022 and 2023. Wall Street Analysts expect the stock to hit $47.78 in the near-term, which indicates a potential 22.2% decline.

ASAN’s poor prospects are apparent in its POWR Ratings also. The stock has an overall D rating, which equates to Sell in our proprietary rating system.

It has a D grade for Growth, Value, Stability, and Quality. Click here to see the additional POWR ratings for ASAN (Momentum and Sentiment). It is ranked #53 of 59 stocks in the D-rated Software – Business industry.

Click here to check out our Software Industry Report for 2021

APPN shares were trading at $146.68 per share on Tuesday afternoon, up $2.04 (+1.41%). Year-to-date, APPN has declined -9.51%, versus a 15.24% rise in the benchmark S&P 500 index during the same period.

About the Author: Nimesh Jaiswal

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...

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