HashiCorp Inc. (HCP) is a market leader in software for multi-cloud infrastructure automation. On December 9, 2021, the company made its stock market debut, going public via the traditional initial public offering process and raising $1.22 billion in gross proceeds.

The company gained 525 new customers during the first quarter and 49 clients with annual recurring revenue (ARR) of $100,000 or more, for a total of 704 such customers in the first quarter of fiscal 2023, up from 523 in the first quarter of fiscal 2022.

However, the stock has lost 66.9% year-to-date and 28.6% over the past three months to close yesterday’s trading session at $30.15. In addition, its shares are currently trading 70.7% below its 52-week high of $102.95, which it hit on December 27, 2021.

Although the cloud automation software firm exceeded analyst estimates for both revenue and net loss per share in the last quarterly release, its full-year projection of significant operating losses certainly raised investors’ worries.

Here’s what could shape HCP’s performance in the near term:

Top-line Growth Could Not Translate Into Bottom-line Improvement

HCP’s total revenue increased 50.8% year-over-year to $100.89 million for the first quarter ended April 30, 2022. Its operating expenses increased 129.6% from the year-ago value to $159.95 million.

Its operating loss surged 408.8% from the prior-year quarter to $78.44 million. The company’s net loss surged 401.8% from the year-ago value to $78.22 million. Its loss per share amounted to $0.43.

In addition, its net cash used in operating activities came in at $13.72 million for the three months ended March 31, 2022, compared to net cash from operating activities of $2.36 million.

Poor Profitability

HCP’s trailing-12-month asset turnover ratio of 0.31% is 51.1% lower than the industry average of 0.63%. Also, its trailing-12-month ROA, ROC, and net income margin are negative 22.3%, 28.5%, and 99.4%, respectively.

Moreover, its trailing-12-month EBIT margin stood at a negative 96.3% compared to its industry average of 8.1%.

Premium Valuation

In terms of forward Price/Book, the stock is currently trading at 5.74x, 41.1% higher than the industry average of 4.07x. Also, its forward EV/Sales of 10.96x is 268.6% higher than the industry average of 2.97x. Moreover, HCP’s forward Price/Sales of 14.08x is 378.3% higher than the industry average of 2.94x.

POWR Ratings Reflect Bleak Outlook

HCP has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. The POWR ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. HCP has a D for Value and Growth. The stock’s higher-than-valuations are in sync with the Value grade. In addition, the company’s poor financials are consistent with the Growth grade.

Of the 56 stocks in the C-rated Software – Business industry, HCP is ranked #51.

Beyond what I’ve stated above, you can view HCP ratings for Quality, Stability, Momentum, and Sentiment here.

Bottom Line

As inflation and increasing interest rates continue to spook investors, no one appears to want to invest in growth stocks like HCP that lack profitability. In addition, analysts expect its EPS to decline at the rate of 34.6% per annum over the next five years.

Moreover, the stock is currently trading below its 50-day and 200-day moving averages of $44.01 and $35.44, respectively, indicating bearish sentiment. So, we think the stock is best avoided now.

How Does HashiCorp Inc. (HCP) Stack Up Against its Peers?

While HCP has an overall D rating, one might want to consider its industry peers, Sapiens International Corporation N.V. (SPNS), Software AG (STWRY), and Amdocs Ltd. (DOX), which have an overall A (Strong Buy) rating.

HCP shares were trading at $30.09 per share on Friday afternoon, down $0.06 (-0.20%). Year-to-date, HCP has declined -66.95%, versus a -17.67% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

More Resources for the Stocks in this Article