Should Investors Consider This Tech Stock on the Cheap?

A Tech Stock to Think About

With the Dow, the S&P 500, and the Nasdaq all soaring past their all-time highs, things have gotten quite a bit more expensive in the U.S. stock market this year.

Unsurprisingly, technology has been one of the hottest sectors. By churning out some very impressive growth rates, many tech companies saw their share prices shoot through the roof.

This makes investors wonder, “Am I too late to get on the profit train?”

I mean, it probably doesn’t feel that great to buy a stock after it has already skyrocketed.

And that’s why today I want to talk to you about Slack Technologies Inc (NYSE:WORK).

Slack is a workplace collaboration software company headquartered in San Francisco. It was founded in 2009 and went public on the New York Stock Exchange through a direct stock listing in June 2019.

Before the company went public, it received a reference price of $26.00 per share. But market participants turned out to be much more enthusiastic, at least initially. On the first day of trading, Slack stock closed at $38.62, or 48.5% higher than its reference price.

The thing is, as time went by, WORK stock was not able to sustain its upward momentum. In fact, at the time of this writing, Slack Technologies Inc has a share price of just $22.99, or 41% lower than the closing price on its first trading day.

And that could represent an opportunity.

You see, when a company experiences such a massive drop in its share price, it’s usually an indication that business is deteriorating. But at Slack, that’s not the case at all.

The company’s recent earnings report showed that, in the third quarter of Slack’s fiscal-year 2020 (which ended October 31, 2019), it generated $168.7 million of total revenue, a whopping 60% increase year-over-year. (Source: “Slack Announces Record Third Quarter Fiscal Year 2020 Results,” Slack Technologies Inc, December 4, 2019.)

Because Slack operates on a subscription-based business model, it’s also important to check its calculated billings, which is defined as revenue plus the sequential change in total deferred revenue. In the reporting quarter, Slack’s calculated billings were $186.1 million, up 47% year-over-year.

For the bottom line, the company reported an adjusted net loss of $0.02 per share.

While we all want to see a profitable business, keep in mind that Slack’s adjusted net loss was $0.14 per share in the prior fiscal quarter and $0.30 per share in the year-ago quarter. So the losses have narrowed by quite a bit.

The best part is, the company’s workplace communication collaboration platform has been gaining popularity among businesses.

Consider this: at the end of October 2018, Slack Technologies had 81,000 paying customers. One year later, the number stood at 105,000, an expansion in its paying customer base of nearly 30%. (Source: “Investor Presentation Third Quarter Fiscal Year 2020,” Slack Technologies Inc, last accessed December 9, 2019.)

The business is recurring, too. In the reporting quarter, the company achieved a net dollar retention rate of 134%. (Source: Slack Technologies Inc, December 4, 2019, op. cit.)

Notably, Slack now has 821 customers that pay more than $100,000 a year to the company. More impressively, the company has more than 50 customers that each contribute over $1.0 million in annual recurring revenue.

Going forward, I wouldn’t be surprised to see the company keep posting impressive growth numbers.

According to management’s own guidance, Slack Technologies Inc is expected to generate total revenue of $621.0 to $623.0 million in its full-year fiscal 2020. At the midpoint, that would translate to a year-over-year top-line growth rate of 55.5%.

Slack Technologies Inc (NYSE:WORK) Stock Chart

Chart courtesy of StockCharts.com

Analyst Take

Add it all up and it’s easy to see that Slack Technologies Inc has a booming business.

And since Slack stock has slipped quite a bit in recent months, there might be an opportunity for bargain-hunting investors to consider it on the cheap.