ASAN - Asana Is Down Nearly 90%: Time To Buy

Summary

• Asana is down nearly 90% from all time highs.
• The company is led by CEO Moskovitz, co-founder of Meta Platforms (formerly known as Facebook).
• Asana reported 57% growth in the latest quarter and has guided for 43% growth this year.
• The stock trades at only 7x sales and I expect great returns moving forward.

Asana ( ASAN ) is one of those stocks that traded to the moon amidst the tech bubble and has seen its stock crash down to earth in the subsequent reckoning. At its peaks, the stock traded at valuations that priced in far too many years of growth. At current prices, the stock trades as if its growth phase has ended. Just as the optimism went too far, the pessimism has swung too far the other way as well. I expect the stock to deliver strong returns over the long term as the company continues growing and tech valuations return to more healthy levels.

ASAN Stock Price

ASAN peaked at around $145 per share and now trades around $17 per share.

That price places it lower than its $21 reference price when it came public via direct listing in late 2020. I last covered ASAN in March when I rated the stock a buy, but noted the high likelihood of a better buying opportunity following its earnings report. That buying opportunity has materialized as the stock has fallen 65% since then.

What is Asana?

ASAN is an enterprise tech company which solves the problem of coordination. Typical coordination solutions like spreadsheets suffer from issues ranging from scalability, flexibility, and adoption.

ASAN offers solutions which help increase its customers’ productivity.

We can see a sample snapshot of ASAN software below. The general idea is that every project your team embarks on can be tracked and managed through ASAN.

Key competitors include tech peers like Atlassian ( TEAM ) and monday.com ( MNDY ). ASAN’s business model is arguably recession resistant due to how entrenched its software becomes with its customers over time.

ASAN Stock Key Metrics

ASAN has sustained rapid growth since it came public with accelerating growth last year. That growth has since decelerated to 57% in the latest quarter.

ASAN has been driving its strong growth through two key traits. First, its largest customers have been growing the fastest with 145% dollar based net retention rates.

Second, those large customers are growing rapidly in numbers.

ASAN is still not profitable, having lost $57.4 million on a non-GAAP basis. Looking forward, ASAN has guided to $540 million or 43% full-year revenue growth. That is up from the previous guidance of $531 million or 40% growth.

At the end of the last quarter, ASAN had $248 million of net cash, making up over 6% of the total market cap. I find it likely that ASAN will have to raise some cash this year, even if it is able to reduce its cost structure by next year.

Is ASAN Stock A Buy, Sell, or Hold?

While ASAN is not yet profitable, the stock is cheap on a price to sales basis. The stock trades at 7x forward sales.

I could see ASAN eventually sustaining at least 25% net margins over the long term. Applying a 1.5x price to earnings growth ratio (‘PEG ratio’), ASAN might trade at 8.6x sales by 2026. That equates to a stock price of $67 per share, or 30% annual upside over the next 4.5 years.

It is worth noting that ASAN is led by its founder and CEO Dustin Moskovitz who is best known as a co-founder of Meta ( META ). CEO Moskovitz owns 92 million shares of the company, making up 48% of shares outstanding.

Much of that stake was built over the past year as he only had 56 million shares one year ago. Key risks here include liquidity and competition. I expect ASAN to issue stock - perhaps via a convertible note - sometime this year. That is not necessarily a huge risk as the company should not need more than $200 million or around 5% of the market cap. The more nagging risk is that of competition - workplace productivity is a crowded space with formidable incumbents like TEAM. ASAN’s strong DBNRR among its largest customers suggests that it is resonating with the market and that growth should sustain for many years. However if the market becomes saturated ASAN may find it difficult to achieve the operating leverage necessary for stronger margins, and its multiple may suffer as well. I rate ASAN a buy due to the overly pessimistic valuation and strong leadership at the helm. ASAN is one of the stocks purchased in the 2022 Tech Stock Crash List I provided for subscribers.

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