Last year, the software industry achieved solid growth due to a COVID-19 pandemic-led increased dependency on remote platforms. The trend has continued this year with an increasing adoption of advanced software in almost every industry as part of widespread digital transformation efforts. According to Grand View Research, the global business software and services market is expected to grow at an 11.3% CAGR between 2021 – 2028.
Investors’ interest in software stocks is evidenced by the SPDR S&P Software & Services ETF’s (XSW) 2.8% returns over the past month versus the SPDR S&P 500 Trust ETF’s (SPY) 0.8% loss. However, this has led to sky-high valuations for some software stocks that are not in sync with their growth prospects. In addition, the industry faces increasing cyber-security-related threats.
The valuations of Upstart Holdings, Inc. (UPST), Asana, Inc. (ASAN), and SecureWorks Corp. (SCWX) at their current price levels are not in sync with their fundamentals and growth prospects. Therefore, Wall Street analysts expect these stocks to decline in price in the near term.
Upstart Holdings, Inc. (UPST)
UPST operates a cloud-based artificial intelligence (AI) lending platform that helps aggregate consumer demand for loans which it connects to its AI-enabled bank partners’ network. Its platform also connects consumers, banks, and institutional investors through a shared AI lending platform. UPST is based in San Mateo, Calif.
UPST’s revenue surged 1,018% year-over-year to $194 million for its fiscal second quarter, ended July 31, 2021. However, its operating expenses increased 448.5% year-over-year to $157.65 million, while its total liabilities came in at $188.49 million, representing a 6.5% year-over-year increase.
In terms of forward P/B, UPST’s 43.78x is 3,798.1% higher than the 1.12x industry average of 1.12x. Likewise, the stock’s 232.28x forward non-GAAP P/E is 2,074.7% higher than the 10.68x industry average.
UPST’s shares have gained 65.7% in price over the past month to close yesterday’s trading session at $336.34. However, Wall Street Analysts expect the stock to hit $261.29 in the near term, which indicates a potential 22.3% decline.
UPST’s POWR Ratings are consistent with this bleak outlook. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting. In addition, the stock has an F grade for Stability, and a D grade for Value.
Asana, Inc. (ASAN)
San Francisco-based ASAN operates a work management platform for individuals, team leads, and executives internationally. The company 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’s revenue surged 72% year-over-year to $33.30 million for its fiscal second quarter, ended July 31, 2021. However, its non-GAAP operating loss increased 41.9% year-over-year to $38.60 million, while its non-GAAP net loss came in at $39.80 million, representing a 51.3% year-over-year increase. Also, its non-GAAP loss per share came in at $0.23, versus $0.34 in the prior-year period.
In terms of forward P/B, ASAN’s 133.07x is 1,960.9% higher than the 6.46x industry average. In addition, the stock’s 61.20x forward P/S is 1,408.7% higher than the 4.06x industry average.
Analysts expect ASAN’s annual revenue to increase 57.5% year-over-year to $357.49 million in its fiscal year 2022. However, the company’s EPS is expected to decline 22.7% for the quarter ending January 31, 2022 and remain negative in fiscal 2022 and 2023. The stock has soared 61.3% in price over the past month to close yesterday’s trading session at $124.48. However, Wall Street Analysts expect the stock to hit $90 in the near term, which indicates a potential 27.7% decline.
ASAN’s poor prospects are apparent in its POWR Ratings also. The stock has an overall rating of D, which equates to a Sell in our proprietary rating system.
It has an F grade for Value, and a D grade for Growth, Stability, and Quality. Click here to see the additional POWR ratings for ASAN (Momentum and Sentiment). It is ranked #54 of 59 stocks in the D-rated Software – Business industry.
SecureWorks Corp. (SCWX)
SCWX provides technology-driven information security solutions to protect its customers, such as SaaS solutions, managed security services, and professional services. The Atlanta, Ga.-based company serves customers in various industries, including financial services, manufacturing, technology, retail, insurance, utility, and healthcare sectors.
SCWX’s net revenue decreased 3.1% year-over-year to $134.17 million for its fiscal second quarter ended July 30, 2021. The company’s operating loss increased 370.1% year-over-year to $13.90 million, while its non-GAAP net income came in at $0.90 million, representing an 89.3% year-over-year decrease. Also, its loss per share was $0.01, down 90% year-over-year.
In terms of forward EV/EBITDA, SCWX’s 924.06x is significantly higher than the 15.83x industry average.
SCWX’s EPS is expected to decline by 140.9% and remain negative in its fiscal year 2022. In addition, the company’s annual revenue is expected to decrease 4.1% year-over-year to $538.21 million in its fiscal year 2022. Over the past three months, the stock has gained 22.8% to close yesterday’s trading session at $26.65. However, Wall Street Analysts expect the stock to hit $19.5 in the near term, which indicates a potential 26.8% decline.
SCWX’s weak fundamentals are reflected in its POWR Ratings. It has a D grade for Growth.
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UPST shares were trading at $330.10 per share on Friday afternoon, down $6.24 (-1.86%). Year-to-date, UPST has gained 710.06%, versus a 19.66% 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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