The software industry has been one of the biggest beneficiaries of the COVID-19 pandemic and is capitalizing on the hybrid working and digital transformation trends.
However, the industry’s solid growth prospects are fostering stiff competition among existing and new players in this space. Also, investors’ optimism about the industry’s potential has caused many software stocks to hit valuations that are not justified by their current or expected financials.
Weak fundamentals and earnings growth potential could cause Snowflake Inc. (SNOW) and Verb Technology Company, Inc. (VERB) to suffer a downturn in the near term. So, we think these stocks are best avoided this summer.
Snowflake Inc. (SNOW)
SNOW provides a cloud-based data platform that offers Data Cloud, an ecosystem that enables customers to consolidate data into a single source to drive meaningful business insights, build data-driven applications, and share data. SNOW is based in San Mateo, Calif.
On June 8, SNOW unveiled its latest product innovations that redefine what’s possible in the Data Cloud. However, the data cloud industry is very competitive, with major players operating in this space, and it might take some time for SNOW to garner significant market share.
SNOW’s operating loss increased 113.3% year-over-year to $205.60 million in its fiscal first quarter, which ended April 30. Its net loss stood at $203.22 million, up 117% from the same period last year. The company’s EPS came in at negative $0.70.
The $1.11 billion consensus revenue estimate for the current year indicates an 88.2% increase year-over-year. Analysts expect the company’s EPS to remain negative at least until next year. SNOW shares have slumped 11.9% over the past six months and 10.4% year-to-date.
SNOW has an overall F rating, which equates to Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
SNOW has an F grade for Value, and D for Growth, Stability, and Quality. It is ranked the last among the 73 stocks in the Technology – Services industry.
Click here to view additional SNOW ratings for Momentum and Sentiment.
Verb Technology Company, Inc. (VERB)
VERB develops a Software-as-a-Service (SaaS) applications platform. VERB’s platform comprises a suite of sales enablement business software products marketed on a subscription basis. VERB provides next-generation CRM lead generation, sales enablement, and video marketing software applications to sales-based organizations.
VERB’s loss from operation increased 141.7% year-over-year to $9.33 million in its fiscal first quarter ended March 31. Its net loss increased 328.8% year-over-year to $8.35 million. The company’s loss per share came in at $0.16.
Analysts expect VERB’s revenues to increase 28.2% year-over-year to $3.59 million in the current quarter, ending September 2021. However, its EPS is expected to remain negative at least until next year. Shares of VERB gained 2.1% intraday to close yesterday’s trading session at $2.98.
It is no surprise that VERB has an overall F rating, which equates to Strong Sell in our proprietary POWR Ratings system. The stock also has an F grade for Quality, and a grade D for Value and Stability. Among the 132 stocks in the D-rated Software – Application industry, VERB is ranked #125.
To see additional VERB ratings for Sentiment, Growth, and Momentum, click here.
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SNOW shares were trading at $256.27 per share on Tuesday afternoon, up $3.99 (+1.58%). Year-to-date, SNOW has declined -8.93%, versus a 16.05% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...
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