Slack Technologies Inc. (WORK) started out as a gaming firm called Tiny Speck in 2009. Now, the company is a business technology software platform with 65 of the Fortune 100 companies as its users. It provides engineering, sales, marketing, IT, project management and human resources solutions. The company has over 12 million daily active users and over 119,000 paid customers.

Discarding the normal IPO route, the company had a direct listing last year, and has gained 43% year-to-date. Remote working and learning being the “new normal,” WORK should gain significantly from growing demand for its services offerings. The company’s impressive revenue and earnings outlook and the potential upside based on a number of factors have helped the stock earn a “Buy” rating in our proprietary rating system.

Here is how our proprietary POWR Ratings system evaluates WORK:

Trade Grade: A

WORK is currently trading above its 50-day and 200-day moving averages of $28.62 and $29.82, respectively, indicating an uptrend. Moreover, WORK has gained 27.5% over the past month, reflecting solid short-term bullishness.

WORK’s total revenue increased 49% year-over-year to $215.90 million for the quarter ended July 2020. Paid customers grew 30% year-over-year to over 130,000. This can be attributed to Slack Connect, which offers seamless, secure intercompany collaboration. Over 52,000 paid customers were using Slack Connect, up 26.8% year-over-year.

Amazon Web Services (AWS) and WORK entered into a partnership deal in June. According to the partnership, Amazon.com, Inc. (AMZN) employees will use Slack extensively. Moreover, WORK received FedRAMP Moderate authorization on August 4th. Earlier this month, H-E-B, one of the largest privately owned retailers in the United States, rolled out Slack to its 100,000 employees.

Buy & Hold Grade: C

Though WORK has an impressive Trage Grade, in terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade takes into account, WORK is not very well positioned. The stock is currently trading 24% below its 52-week high of $40.07, which it hit on June 4th.

WORK’s EBITDA declined 43.2% year-over-year, while EPS fell 76.9% from the year-ago value. However, the company’s revenue increased 51.4% from the prior year quarter. WORK’s increasing sales and marketing expenses coupled with rising competition from software and cloud computing companies have acted as a major barrier to its growth since its market debut.

Peer Grade: C

WORK is currently ranked #24 out of 48 stocks in the Software-Business industry. Other popular stocks in the software-business group are Salesforce.com Inc (CRM), ServiceNow, Inc. (NOW), and Autodesk, Inc. (ADSK).

CRM and NOW beat WORK by gaining 59% and 85.9% year-to-date, respectively, while ADSK returned 41.7% over this period. 

Industry Rank: B

The Software-Business industry is ranked #29 out of the 123 industries in the StockNews.com universe. With the world going digital, the technology sector has been in the forefront since the beginning of the pandemic. The demand for advanced software and cloud computing services have been on the rise to make remote working and learning experience seamless.

Overall POWR Rating: B (Buy)

WORK is rated “Buy” due to its short-term bullishness, solid growth prospects, and underlying industry strength, as determined by the four components of our overall POWR Rating.

Bottom Line

WORK has the potential to see gains in the upcoming months despite gaining 43% so far this year, based on its continued business growth, favorable earnings and revenue outlook, and strong financials.

Analyst sentiment, which gives a good sense of a stock’s future price movement, is pretty impressive for WORK. It has an average broker rating of 1.65, indicating a favorable analyst sentiment. Out of 20 Wall Street analysts that rated the stock, 10 rated it “Strong Buy.”  Moreover, WORK has an impressive earnings surprise history with the company beating street EPS estimates in each of the trailing four quarters. Analysts expect the company’s EPS to grow 33.3% next year. This outlook should keep WORK’s price momentum alive in the near term. 

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WORK shares were trading at $32.29 per share on Monday afternoon, up $0.04 (+0.12%). Year-to-date, WORK has gained 43.64%, versus a 7.79% 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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