For Now, Asana’s Weaknesses Outweigh Its Strengths

Asana (NYSE:ASAN), which provides a “work management platform,” has important strengths, including the many positive reviews that its offering received and that it provides a few services not offered by its main competitors. Conversely, the company is facing very tough competition, it’s far from being profitable, and the valuation of ASAN stock is quite high.

In light of these points, I advise investors to avoid the shares at this point.

Positive Reviews and Important Niches

The reviews of Asana’s platform appear to be overwhelmingly positive. For example, in June PC Mag called Asana (the product has the same name as the company) a “top-notch” collaboration tool. “Although {the product} may be confusing at first, its flexibility and vast capabilities are well worth the effort it takes to get started.” PC Mag gave the offering 4.5 out of five stars.

Also very upbeat on the product were most reviewers on G2. On that site, 7,149 reviewers gave the product four or five stars and less than 700 awarded it between one and three stars. I’d say a success rating of over 90% is pretty impressive.

Importantly, several of the reviews which I read on G2 noted that Asana was very effective when it comes to managing remote employees. At a time when the work-from-home trend remains quite prevalent and since even after concerns about the coronavirus disappear many people will likely continue working from home, that’s a very important factor working in Asana’s factor.

The product has a few other important distinctions. According to Seeking Alpha, it enables companies to integrate “more security and data governance” into their existing software. Asana also collaborates with multiple information security providers, including Okta (NASDAQ:OKTA), and Asana, in general, has more partnerships with other tech firms than its competitors.

Finally, Asana’s revenue soared 70% year-over-year last quarter, indicating that it’s growing rapidly and taking significant market share.

Asana’s Weaknesses

First and foremost, the company is facing a huge amount of tough competition, including Microsoft (NASDAQ:MFST), Alphabet’s Google (NASDAQ:GOOG, NASDAQ:GOOGL), NortonLifeLock’s Norton (NASDAQ:NLOK) and Monday.com (NASDAQ:MNDY).

Taking on Alphabet, Microsoft and dozens of other competitors is very difficult for a company whose revenue in its fiscal 2021 (which mostly fell in calendar 2020) was just $227 million and that spent a total of just $402.5 million during that year.

And as the latter numbers indicate, Asana, which was founded back in 2008, remains deeply in the red. Its operating income in the fiscal 2021 year was a loss $175.6 million, down from -a loss of $119.6 million in 2020 and a loss of $52 million in 2019. The fact that the company’s operating income went down in each of the last two years is also discouraging.

Despite these issues, the valuation of ASAN stock is gigantic. Although the shares have tumbled nearly 50% from their November highs, their trailing price-sales ratio is a staggering 34.4. And based on analysts’ average 2022 sales estimate, the shares are trading at a price-sales ratio of 27.5.

The Bottom Line on ASAN Stock

Asana’s strong reviews are encouraging, and it seems to be a market leader when it comes to IT security, partnerships, and remote workers.

While those are very important capabilities, I’m unsure if they will enable Asana to continue taking market share from its dozens of competitors, including Alphabet and Microsoft.

What’s more, at a time when Wall Street is largely shunning stocks with very high valuations and high losses, Asana checks both of those boxes.

Therefore, I would sell ASAN stock and await either a much more attractive valuation or compelling evidence that Asana can profitably take share from its competitors over the long term.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Larry has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful, contrarian picks have been solar stocks, Upstart, Roku, Plug Power, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.