Tech stocks have been hit hard since the start of the year after impressive gains over the last two years. Investor concerns surrounding Fed’s tighter monetary policy to combat 40-year high inflation caused the tech-heavy Nasdaq Composite Index to register its worst performance in January since March 2020. Also, the escalating war between Russia and Ukraine has aggravated already volatile market conditions.
Consequently, U.S. equity indexes have stumbled dramatically. The tech-centric Nasdaq Composite Index declined 18.2% year-to-date and 18.4% over the past three months. Some tech stocks were down 75% this year from their highs in 2021. And as investors rotate toward energy and defensive stocks given the current macroeconomic backdrop, overvalued cloud stocks are expected to lose momentum in the near term.
Given these factors, we think it advisable to avoid fundamentally bleak cloud stocks Bill.com Holdings, Inc. (BILL), Confluent, Inc. (CFLT), and Asana, Inc. (ASAN).
Click here to check out our Cloud Computing Industry Report for 2022
Bill.com Holdings, Inc. (BILL)
BILL offers cloud-based software that simplifies, digitizes, and automates back-office financial operations worldwide for small and midsize businesses (SMBs). The Palo Alto, Calif., company provides an AI-enabled financial software platform, software-as-a-service, cloud-based payments and spend management products, ongoing support, and training services. It also serves accounting firms and financial institutions.
On Sept. 24, 2021, BILL priced $575 million of 0% convertible senior notes that will mature on April 1, 2027. The offering might increase BILL’s debt burden.
In its fiscal year 2022 second quarter, ended Dec. 31, 2021, BILL's total operating expenses increased 265.3% year-over-year to $198.17 million. Its loss from operations grew 436.8% year-over-year to $76.08 million. The company's net loss increased 368.2% year-over-year to $80.44 million. And its net loss per share attributable to common stockholders rose 271.4% year-over-year to $0.78.
BILL is relatively overvalued compared to its peers. In terms of forward EV/Sales, BILL is currently trading at 34.28x, which is 941.5% higher than the 3.29x industry average. Its 5.00 forward Price/Book multiple is 16.5% higher than the 4.29x industry average. And its 32.41 forward Price/ Sales ratio compares with the 3.11industry average.
The negative $0.16 consensus EPS estimate for its fiscal 2022 third-quarter, ending March 31, 2022, represents a 709.4% year-over-year decline.
The stock has declined 26.1% in price year-to-date and 27.7% over the past three months. BILL closed yesterday's trading session at $184.19.
BILL's POWR Ratings are consistent with this bleak outlook. The company has an overall F rating, which translates to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
BILL has an F grade for Value and Stability and a D for Quality. Within the F-rated Software - Application industry, it is ranked #153 of 163 stocks. To see BILL's POWR Ratings for Growth, Sentiment, and Momentum, click here.
Confluent, Inc. (CFLT)
Mountain View, Calif.-based CFLT operates a data streaming platform in the U.S. and internationally. Its platform offers the capacity to fill the structural, operational, and engineering gaps required for businesses. The company provides Confluent Cloud, Confluent Platform, Kafka Connect, ksqIDB database, stream governance solution, training, and professional services.
Last December, CFLT priced a $1 billion offering of convertible senior notes due 2027 in a private placement. The note offering is expected to increase the company’s debt.
CFLT's total operating expenses increased 129.4% year-over-year to $187.46 million in its fiscal year 2021 fourth quarter, ended Dec. 31, 2021. CFLT’s operating loss grew 251.9% year-over-year to $113.68 million. The company’s net loss and net loss per share came in at $114.44 million and $0.43, respectively, registering an increase of 260.4% and 43.3% from the same period last year.
CFLT is trading at a premium to its peers. In terms of forward EV/Sales, CFLT is currently trading at 16.11x, which is 389.6% higher than the 3.29x industry average. Its 16.12 forward Price/Sales multiple is 417.7% higher than the 3.11x industry average. CFLT’s 13.25 forward Price/Book ratio compares with the 4.29 industry average.
The Street expects CFLT's loss per share to amount to $0.76 for its fiscal year 2022 ending Dec. 31, 2022.
Shares of CFLT have declined 56.1% in price year-to-date and 54.2% over the past three months. It closed yesterday's trading session at $33.49.
CFLT's POWR Ratings reflect its poor prospects. The company has an overall F rating, which equates to a Strong Sell in our proprietary rating system.
CFLT has an F grade for Stability. It has a D grade for Growth, Value, and Quality. It is ranked #155 of 163 stocks in the F-rated Software - Application industry. To see additional POWR Ratings (Sentiment and Momentum) for CFLT, click here.
Asana, Inc. (ASAN)
ASAN operates a work management platform in the U.S. and internationally. The San Francisco, Calif.-based company provides a work management platform that enables individuals, team leads, and executives to complete their work. It allows employees to manage and prioritize across each project and manage work across a portfolio of projects or processes.
In its fiscal year 2022 third quarter, ended Oct. 31, 2021, ASAN’s total operating expenses rose 39.9% year-over-year to $158.84 million. The company’s operating loss increased 10.7% year-over-year to $41.30 million. ASAN’s net loss increased 11% year-over-year to 42.50 million. And its net loss per share for the period amounted to $0.23.
ASAN is relatively overvalued compared to its peers. In terms of forward EV/Sales, ASAN is currently trading at 23.17x, which is 603.9% higher than the 3.29x industry average. Its 21.80 forward Price/Sales multiple is 600.1% higher than the 3.11x industry average. Its 41.25 forward Price/ Book ratio compares with the 4.29 industry average.
The negative $0.28 consensus EPS estimate for its fiscal year 2022 fourth quarter, ended Jan. 31, 2022, represents a 27% year-over-year decline.
ASAN stock has decreased 40.3% in price year-to-date and closed yesterday's trading session at $44.49.
ASAN's POWR Ratings reflect this bleak outlook. It has an overall F rating, which translates to a Strong Sell in our POWR Ratings system.
ASAN has an F grade for Stability. The stock has a D for Value and Quality. It is ranked #53 of 56 stocks in the D-rated Software - Business industry. Click here to see ASAN's POWR Ratings for Growth, Sentiment, and Momentum.
Click here to check out our Cloud Computing Industry Report for 2022
BILL shares were trading at $199.67 per share on Wednesday morning, up $15.48 (+8.40%). Year-to-date, BILL has declined -19.86%, versus a -10.34% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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