Why Asana stock plunged 28% today

What happened

Share of all workflow and project management software Asana (NYSE: ASAN) sank over 28% today at 3:40 p.m. ET. The small, cloud-based services company has skyrocketed since its initial public offering (IPO) in 2020, but after its third-quarter earnings update, the stock has now returned until it was last summer.

Despite this, Asana stock is still up over 130% since its debut as a publicly traded stock last year.

Image source: Getty Images.

So what

Turning to the third quarter of fiscal 2022 results (for the period ended October 31, 2021), Asana posted year-over-year revenue growth of 70% to $ 100 million. However, the losses widened relative to Asana this time around in calendar year 2020. Free cash flow was negative $ 29.5 million in the quarter, down from less than $ 19.5 million. of dollars 12 months ago.

The market has recently punished high-growth but richly valued stocks like Asana, even though the threat of another wave of a pandemic (this time of the omicron variant) means digital tools like those offered by Asana are here to stay. The good news for this company is that although it is aggressively spending to maximize revenue expansion right now, cash and short-term equivalents still totaled $ 344 million at the end of October, offset by a loan to term of just $ 35.6 million.

Now what

Management said it expects an increase of at least 53% year-over-year in the fourth quarter of fiscal 2022 to around $ 105 million, although the losses will remain significant for now. Asana is a fast growing software company, but the over-optimism of shareholders has spiraled out of control in recent months. That’s not to say it’s not a very long-term, quality business.

However, even after the massive sell-off, Asana stock is trading 32 times the current year’s expected sales. Invest with that in mind, if you choose, in this cloud-based software stock, as well as another workflow disruptor and recent IPO stock. Monday.com. If you do buy, keep the bet small and be prepared to gradually increase your position over time to take advantage of dips such as the one taking place right now.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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