Fully integrated enterprise cloud platform Phunware Inc. (PHUN - Get Rating), which is headquartered in Austin, Tex., is the pioneer of Multiscreen-as-a-Service (MaaS), which provides enterprises with the tools, solutions, data, and services required to engage, manage, and monetize their mobile application portfolios and audiences at scale internationally. The stock has gained 112.9% in price over the past year to close yesterday’s trading session at $2.83.

In addition, the shares soared nearly 12.5% on Tuesday on speculation surrounding connections between the company and Trump Media & Technology Group’s planned Truth Social media platform.

However, the stock has declined 7.5% in price over the past month and is currently trading 88.2% below its 52-week high of $24.04, which it hit on Oct. 22, 2021. Furthermore, the company reported unimpressive financials in its last quarter.

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

Connection with the Former President’s Social Media Platform

In 2020, PHUN assisted in developing the Trump campaign’s mobile app and supplied other data analytics and social media services. So, investors are eyeing PHUN as a prospective software service provider for Truth Social. Digital World Acquisition, a special purpose acquisition company (SPAC) that is on track to take Trump Media & Technology Group public through a merger. However, it is unclear whether the corporation is associated with Truth Social or a possible presidential candidacy in 2024.

Disappointing Financials

PHUN’s revenue declined 31% year-over-year to $2.16 million for the third quarter, ended Sept. 30, 2021. Its operating loss came in at $4.04 million. The company’s cash and cash equivalents declined 77.6% for the nine months ended Sept. 30, 2021, while its net cash used in operating activities increased 193% to $19.09 million over this period.

Weak Profitability

PHUN’s 0.24% trailing-12-months asset turnover ratio is 62.6% lower than the 0.63% industry average. Also, its ROC, levered FCF margin, and EBITDA margin are negative 102.7%, 213.6%, and 201.9%, respectively. Furthermore, its trailing-12-month cash from operations stood at a negative $23.55 million, versus the $118.48 million industry average.

POWR Ratings Reflect Uncertainty

PHUN has an overall F rating, which equates to a Strong Sell in our proprietary POWR Ratings system. The POWR ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. PHUN has an F grade for Stability and Quality. The stock has a 16.48 beta, which is consistent with its Stability grade. In addition, the company’s weak financials and poor profitability are in sync with its Quality grade.

Of the 62 stocks in the D-rated Software – Business industry, PHUN is ranked #60.

Beyond what I have stated above, one can view PHUN ratings for Value, Growth, Sentiment, and Momentum here.

Bottom Line

Although investor optimism surrounding the speculation about PHUN’s potential connection with ex-President Trump’s social media platform has helped its shares surge over the past few months, the shares are currently trading 88.2% below their 52-week high. Furthermore, analysts expect the company’s EPS to remain negative in the current fiscal year. So, we think the stock is best avoided now.

How Does Phunware Inc. (PHUN) Stack Up Against its Peers?

While PHUN has an overall F rating, one might want to consider its industry peers, F5 Networks Inc. (FFIV - Get Rating), Rimini Street Inc. (RMNI - Get Rating), and SS&C Technologies Holdings Inc. (SSNC - Get Rating), which have an overall A (Strong Buy) rating.

Click here to check out our Software Industry Report

PHUN shares were trading at $2.86 per share on Thursday morning, up $0.03 (+1.06%). Year-to-date, PHUN has gained 8.75%, versus a -3.80% 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...

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