Headquartered in Tel Aviv-Yafo, Israel, software publisher WalkMe Ltd. (WKME) is known for its ‘no-code’ cloud-based digital adoption platform (DAP). The company made its stock market debut on June 16, 2021 with a traditional IPO  that raised roughly $287 million. But  the stock plunged on its first day of trading to close the session 7% below its IPO price. However, the stock has since gained 1.1% to close yesterday’s trading session at $29.13.

WKME boasts more than 2,000 companies as customers, including Microsoft Corporation (MSFT), Adobe Inc. (ADBE) and International Business Machines Corporation (IBM).

However, the company has reported losses each year since 2011, and according to its S-1 filing, and it is expected to continue to incur additional losses in the foreseeable future. So, WKME’s near-term prospects seem uncertain.

Click here to check out our Software Industry Report for 2021

Here’s what we think could influence WKME’s performance in the near term:

Industry Tailwinds

The Software-as-a-Service (SaaS) market, which includes cloud-based software services, is expected to grow significantly in the foreseeable future because it plays a key role in enabling organizations to accelerate their digital transformation. According to Globe Newswire, the global SaaS market is expected to grow at an 11% CAGR over the next four years.

Also, Israel’s start-up ecosystem is ranked #3 in the world, according to StartupBlink’s annual Startup Ecosystem Index Report. Consequently, WKME is expected to benefit significantly from a favorable domestic environment.

Mixed Financials

WKME’s revenue from subscriptions has increased 29.8% year-over-year to $38.47 million for the quarter ended March 31, 2021, while its revenue  from professional services has declined 8.5% year-over-year to $4.18 million. The company’s operating loss for the quarter came in at $13.05 million, which represents a 16% year-over-year rise. Its net loss in the quarter was  $13.40 million, versus  $12.28 million in the year-ago period. Its loss per share remained flat to the prior year at $0.96.

Poor Profitability

In terms of trailing-12-month levered FCF margin, WKME’s 7.45% is 40.9% lower than the 12.61% industry average. The stock’s trailing-12-month ROTC and ROTA are negative compared to the industry 4.51% and 3.28% respective averages. Its trailing-12-month net income margin is also negative, versus the 5.36% industry average.

POWR Ratings Reflect Uncertainty

WKME has an overall C rating, which equates to Neutral in our POWR Ratings system. The POWR Ratings are calculated by 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. Among these categories, WKME has a C grade for Quality, which is consistent with its lower-than-industry profitability ratios.

The stock has a C grade for Value. This is in sync with its 13.13x and 591.60x  respective forward P/S and P/B, which are higher than the 4.03x and 5.99x  industry averages.

WKME has a C grade for Growth also. This is justified given that analysts expect its revenue to increase 27% year-over-year to $236.54 million in its fiscal year 2022 but expect its EPS to remain negative in 2021 and 2022.

WKME is ranked #47 of 132 stocks in the D-rated Software – Application industry. Click here to see WKME’s ratings for Momentum, Stability, and Sentiment as well.

Better than WKME: Click here to access several top-rated stocks in the same industry.

Bottom Line

WKME continues to take several measures to strengthen its hold in the competitive and growing SaaS market. However, analysts expect its EPS to remain negative in the coming quarters. So, we think it’s better to wait for the company to show some financial strength before betting on the stock.

Click here to check out our Cloud Computing Industry Report for 2021

WKME shares were unchanged in premarket trading Thursday. Year-to-date, WKME has gained 1.11%, versus a 17.09% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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