Since the beginning of this year, the technology industry has remained under pressure on worries about the Fed’s hawkish stance, surging inflation, and slowing economic growth. The tech-heavy NASDAQ Composite has plunged into bear market territory, declining 12.8% year-to-date and 10.3% over the past three months.
Given the recent macro headwinds, fundamentally weak SaaS stocks are underperforming. Because the Fed raised interest rates this week and intends to hike rates several times this year, overvalued tech stocks are expected to retreat further.
Given the backdrop, we think fundamentally weak SaaS stocks Palantir Technologies Inc. (PLTR), UiPath Inc. (PATH), and Smartsheet Inc. (SMAR), which are currently trading at lofty valuations, are best avoided now.
Click here to check out our Software Industry Report for 2022
Palantir Technologies Inc. (PLTR)
PLTR in Palo Alto, Calif., builds and deploys software platforms for the intelligence community to assist in counterterrorism operations in the U.S. The company offers a software platform, Palantir Gotham, which allows users to identify patterns hidden within datasets from signal intelligence sources. In addition, it provides Palantir foundry, which creates a central operating system for the data, which transforms the way organizations operate and provides apollo software for deploying software virtually in any environment.
In January, PLTR announced its plans to expand in South Korea. PLTR will collaborate with the HHI Group to build a big data platform. The two parties will also consider establishing a joint venture to promote the big data platform business in the mid-to-long term. This collaboration is expected to take a while to deliver gains to the company.
In its fiscal 2021 fourth quarter, ended Dec. 31, 2021, PLTR’s cost of revenue increased 24.2% year-over-year to $87.56 million. Its loss from operations amounted to $58.94 million for the fourth quarter. The company’s net loss and net loss per share attributable to common shareholders amounted to $156.19 million and $0.08, respectively.
In terms of forward Non-GAAP P/E, PLTR is currently trading at 62.15x, which is 219.4% higher than the 19.46x industry average. Its 40.55 forward EV/EBITDA multiple is 210.5% higher than the 13.06x industry average. Its 12.47 forward Price/Sales ratio compares with the 3.24 industry average.
The negative $0.04 consensus EPS estimate for its fiscal 2022 first quarter, ending March 31, 2022, represents a 5.7% year-over-year decline. The stock has declined 32.3% in price year-to-date and 35.4% over the past three months. PLTR closed yesterday’s trading session at $12.32.
PLTR’s POWR Ratings are consistent with this bleak outlook. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
PLTR has an F grade for Value and Sentiment. The stock has a D grade for Stability. Within the F-rated Software – SAAS industry, it is ranked #15 of 24 stocks. To see PLTR’s POWR Ratings for Growth, Quality, and Momentum, click here.
UiPath Inc. (PATH)
New York City’s PATH offers an end-to-end automation platform that provides robotic process automation (RPA) solutions in the U.S., Romania, and Japan. The company offers a wide range of platforms, including UiPath Studio, UiPath Robots, and UiPath Orchestrator. In addition, PATH provides maintenance and support for its software and professional services to facilitate the adoption of its platform.
PATH’s total operating expenses increased 52.4% year-over-year to $293.96 million in its fiscal 2022 third quarter, ended Oct. 31, 2021. PATH’s operating loss grew 84.5% year-over-year to $116.25 million. The company’s net loss came in at $122.79 million, registering a 73.4% increase from the prior-year period. Its net loss per share attributable to common shareholders amounted to $0.23.
In terms of forward Non-GAAP P/E, PATH is currently trading at 478.83x, which is 2,360.7% higher than the 19.46x industry average. Its 16.96 forward Price/Sales multiple is 423.2% higher than the 3.24x industry average. And PATH’s 247.07 forward EV/EBITDA ratio compares with the 13.06 industry average.
The Street expects PATH’s loss per share to amount to $0.03 for its fiscal 2023 first quarter, ending April 30, 2022.
Shares of PATH have declined 33.7% year-to-date and 30.7% over the past three months. It closed yesterday’s trading session at $28.61.
PATH’s POWR Ratings reflect its poor prospects. The company has an overall D rating, which equates to a Sell in our proprietary rating system.
PATH has a grade of D for Stability, Growth, and Value. It is ranked #20 of 24 stocks in the F-rated Software – SAAS industry. To see additional POWR Ratings (Sentiment, Quality, and Momentum) for PATH, click here.
Smartsheet Inc. (SMAR)
SMAR is a cloud-based company that is headquartered in Bellevue, Wash. It provides a platform that enables teams and organizations to plan, manage, automate, and report on work. The company offers Dashboards, Portals, Projects, Integrations, WorkApps, Control Center, Accelerators, Dynamic View, Data Uploader, and Brandfolder for the smooth execution of work. It serves the automotive, aerospace, biotechnology, consumer, e-commerce, finance, government, education, healthcare, IT services, marketing, software, and travel sectors.
In its fiscal year 2022 fourth quarter, ended Jan. 31, 2022, SMAR’s total operating expenses rose 54.1% year-over-year to $176.51 million. The company’s operating loss increased 173.8% year-over-year to $14.48 million. SMAR’s net loss increased 215.3% year-over-year to $15.47 million, while its net loss per share for the period amounted to $0.28.
In terms of forward EV/Sales, SMAR is currently trading at 7.09x, which is 119% higher than the 3.24x industry average. Its 8.25 forward Price/Sales multiple is 154.4% higher than the 3.24x industry average. Its 12.3 trailing-12-month Price/Book ratio compares with the 3.74 industry average.
The negative $0.12 consensus EPS estimate for its fiscal year 2023 first quarter, ending April 30, 2022, represents a 31.3% year-over-year decline. SMAR has missed consensus EPS estimates in each of the trailing four quarters.
SMAR stock has decreased 37.3% in price year-to-date and 33.3% over the past three months. It closed yesterday’s trading session at $48.58.
SMAR’s POWR Ratings reflect this bleak outlook. It has a grade of D for Value. It is ranked #18 of 24 stocks in the F-rated Software – SAAS industry. Click here to see SMAR’s POWR Ratings for Growth, Sentiment, Stability, Quality, and Momentum.
Click here to check out our Software Industry Report for 2022
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PLTR shares were trading at $12.75 per share on Friday morning, up $0.43 (+3.49%). Year-to-date, PLTR has declined -29.98%, versus a -7.29% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions. More...
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