Asana’s valuation is among the highest in the software sector.
Courtesy Asana
The challenge investors face on cloud-based enterprise software stocks boils down to a question of valuation: While growth isn’t a problem, what to pay for it remains a matter of debate.
Case in point: RBC Capital analyst Rishi Jaluria on Tuesday picked up coverage and cut the firm’s ratings on both Asana (ticker: ASAN), which provides tools for managing workflow, and Coupa Software (COUP), which sells spend management software. In both cases, Jaluria trimmed ratings on the stocks to Sector Perform from Outperform.
The analyst boosted the firm’s target price on Asana to $70, up from $45, but slightly below Monday’s closing price of $74.56. For Coupa, his target is $210, down from $300 and about in line with the current share price.
For Asana, his concerns are a combination of competitive and valuation questions. “While we like Asana’s business focus and our due diligence is increasingly positive, we have concerns around the market opportunity and competition and view shares as fully valued,” he writes in a research note. Jaluria says moves to hybrid work should provide a tailwind to Asana, and he notes that growth remains robust. But he notes out that the field is competitive, including Smartsheet (SMAR), Monday.com (MNDY), Adobe (ADBE), Citrix Systems (CTXS), and Atlassian (TEAM), among others.
He adds that Asana shares have soared 160% over the past three months, driven by strong financial performance, pushing the stock’s valuation to 34 times estimated 2022 revenues, among the highest in the software sector.
His concerns on Coupa are similar. “While we like Coupa’s market leadership position, economic moat with its multi-sided marketplace, and solid financial profile, we view shares as fairly valued and have concerns around the true size of the market opportunity,” he writes.
Jaluria adds that Coupa “offers a solid value proposition that should only increase as the company expands its platform,” but he thinks the company’s estimate of the size of the market at $94 billion seems aggressive.
On Tuesday, Asana shares were up 1.3% to $75.50, while Coupa was off 1.8% to $207.
Write to Eric J. Savitz at [email protected]
