Various cloud and software solutions have helped facilitate remote working amid the COVID-19 pandemic, which continues with rising cases. However, most software stocks had a poor start this year. Investors’ pessimism about the software space is evident in the SPDR S&P Software & Services ETF’s (XSW) 6.3% loss over the past week.
Recently, investors have been rotating out of overvalued tech stocks, especially software stocks, because the Federal Reserve has indicated that it might raise interest rates sooner than it originally planned to fight inflation. According to data compiled by Bernstein, about one-third of all tech stocks were recently traded at more than 10 times their revenues. Also, according to a Barrons report, the tech-heavy Nasdaq has suffered its worst three-day start to a year since 2008.
Software stocks Atlassian Corporation Plc (TEAM), HubSpot, Inc. (HUBS), HashiCorp, Inc. (HCP), monday.com Ltd. (MNDY), and Globant S.A. (GLOB) declined more than 20% in price last week and seem overvalued at their current price levels. So, let’s take a closer look at their fundamentals.
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Atlassian Corporation Plc (TEAM)
Headquartered in Sydney, Australia, TEAM designs, develops, licenses, and maintains various software provisions software hosting services worldwide. The company’s offerings include project management, collaboration, issue tracking, integration, deployment, and support services.
TEAM’s total revenues increased 33.6% year-over-year to $614.02 million for its fiscal first quarter, ended Sept 30, 2021. However, its total operating expenses increased 27.4% year-over-year to $476.36 million. Its net loss came in at $400.10 million, up 1,756.3% year-over-year, while its loss per share increased 1,666.7% year-over-year to $1.59.
In terms of forward EV/S, TEAM is currently trading at 29.42x, which is 625% higher than the 4.06x industry average. Likewise, the stock’s 29.58x forward P/S is 648.8% higher than the 3.95x industry average. Analysts expect its EPS to decline 16.7% year-over-year to $0.40 for the quarter ending March 31, 2022. Last week, the stock declined 20.5% in price to close Friday’s trading session at $303.71.
HubSpot, Inc. (HUBS)
HUBS Cambridge, Mass., provides a cloud-based customer relationship management (CRM) platform for businesses worldwide. The company's CRM platform includes marketing, sales, service, content management systems, and integrated applications. In addition, it offers professional, phone, email, and chat-based support services and serves mid-market business-to-business companies.
On Oct.12, 2021, HUBS introduced new enterprise-grade features and updates to help businesses align their data, channels, and teams and easily adapt to every growth phase. Its latest improvements introduce more advanced customization and controls for customers, and customer experience-enhancing features like HubSpot Payments, custom surveys, and customer portals. These features will likely help expand its portfolio.
For the third quarter, ended Sept.30, 2021, HUBS’ total revenue increased 48.5% year-over-year to $339.20 million. However, its total operating expenses increased 41.4% year-over-year to $284.52 million. Its net loss came in at $13.74 million, compared to $22.50 million in the prior-year quarter. Also, its loss per share was $0.29, versus $0.49 in the year-ago period.
HUBS’ 18.33 forward EV/S is 351.9% higher than the 4.06x industry average. In terms of forward P/S, it is currently trading at 18.69x, which is 373.1% higher than the 3.95x industry average. It declined 22.6% in price last week to close Friday’s trading session at $509.69.
HashiCorp, Inc. (HCP)
San Francisco-based software company HCP provides open-source tools and commercial products that enable developers, operators, and security professionals to provision, secure, run and connect cloud-computing infrastructure. It serves various industries, including financial, healthcare, manufacturing, media, and entertainment. Also, it had an impressive stock market debut on Dec. 9, 2021.
On Nov. 24, 2021, HCP announced the availability of three products on its HashiCorp Cloud Platform (HCP): HashiCorp Consul, Vault, and Packer, as managed service offerings for organizations across the Asia-Pacific and Japan region, with hosting sites in Australia and Singapore. However, it is uncertain if these solutions will generate increased demand amid an overcrowded market for software solutions.
In terms of forward EV/S, HCP’s 41.91x is 933% higher than the 4.06x industry average. Its 42.43x forward P/S is 948.8% higher than the 3.95x industry average. Analysts expect HCP’s EPS to remain negative in fiscal 2022 and 2023. The stock declined 20.9% in price last week to close Friday’s trading session at $71.77.
monday.com Ltd. (MNDY)
Headquartered in Tel Aviv-Yafo, Israel, MNDY develops software applications internationally. It offers product solutions for marketing, CRM, project management, software development, and customer success services. Also, it serves various organizations, including educational and government institutions.
For its fiscal third quarter, ended Sept. 30, 2021, MNDY’s non-GAAP operating loss came in at $9.45 million, down 69.4% year-over-year. The company’s non-GAAP net loss was $11.37 million, representing a 63.6% year-over-year decline. Also, its non-GAAP loss per share declined 67.9% year-over-year to $0.26.
In terms of forward P/S, MNDY is currently trading at 34.81x, which is 781.3% higher than the 3.95x industry average. Its 31.90x forward EV/S is 686.2% higher than the 4.06x industry average. Its EPS is expected to remain negative in fiscal 2021 and 2022. Last week, the stock declined 23.2% in price to close Friday’s trading session at $237.38.
Globant S.A. (GLOB)
Based in Luxembourg, GLOB provides information technology services, offering application development and maintenance, testing, and infrastructure management. The company serves medium-to-large-sized companies operating across various industries, including media and entertainment, technology and telecommunications, travel and hospitality, and manufacturing.
GLOB’s revenues increased 70.8% year-over-year to $131.49 million for the third quarter, ended Sept. 30, 2021. The company’s total comprehensive income came in at $25.98 million, up 129% year-over-year, while its EPS increased 100% year-over-year to $0.60. However, its total liabilities were $512.23 million for the period ended Sept.30, 2021, compared to $408.83 million for the period ended Dec. 31, 2020.
In terms of forward P/S, GLOB is currently trading at 8.10x, which is 105% higher than the 3.95x industry average. And the stock’s 7.82x forward EV/S is 92.6% higher than the 4.06x industry average. It declined 20.4% last week to close Friday’s trading session at $250.19.
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TEAM shares were trading at $301.07 per share on Monday afternoon, down $2.64 (-0.87%). Year-to-date, TEAM has declined -21.04%, versus a -2.55% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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