CNBC’s Jim Cramer on Wednesday recommended investors refrain from starting a position at current levels in the newly public software company Asana.
Asana, a San Francisco-based software provider for tracking group projects, enjoyed a double-digit rally on its first trading day with shares settling at $28.80, giving it a $4.86 billion market valuation.
The company was given a reference price of $21 before it listed directly on the New York Stock Exchange in the morning.
“Asana’s definitely worth something … [but] it’s too high now,” the “Mad Money” host said.
While it is a fast-growing company, Cramer expressed concern about Asana’s valuation when taking into account the company’s distance from profitability and the competition that it’s going up against.
Asana, co-founded and headed by Facebook co-founder Dustin Moskovitz, grew revenue by 86% to $142.6 million in its 2020 fiscal year and 71% in its most recent quarter that ended in April. Facebook, Google and Harvard University are among its customers.
Losses for the fiscal year, however, more than doubled from the year prior as the firm sank more money into sales and marketing operations in efforts to gain market share as companies shifted to remote work amid the pandemic. The expenses ate into the company’s margins and its losses stretched from $50.9 million in 2019 to $118.6 million in its most recent fiscal year.
“Asana is an imperfect cloud play with a stock that’s priced for perfection,” Cramer said.
Considering the Rule of 40, Cramer’s “quick and dirty” method to evaluate software-as-a-service plays, Asana misses the mark. The rule stipulates that the company in question’s revenue growth and operating margin, or what a company keeps in sales after paying costs, combined should top 40%.
With revenue growth of 86% and an operating margin of negative 49%, Asana measures at 37%. When considering the first half of 2020, that number falls to 12%.
“I think this is an intriguing industry, but there’s too much competition,” Cramer said, “and at these levels the darned stock is simply too expensive.”
Disclosure: Cramer’s charitable trust owns shares of Facebook and Google parent Alphabet.
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