In 2020, enterprise software became an investor favorite. However, over the past few weeks, tech stocks have entered shaky grounds. As the global economy pulls itself back on track, investors are rotating away from pricey technology stocks in favor of non-tech stocks that have been lying low amid the pandemic. Widespread profit taking and increasing bond yields have caused the sector to exhibit some weakness.
Viewing things from a long-term perspective, the enterprise software industry holds immense potential because pandemic-driven trends are expected to continue even in the post-pandemic world. Indeed, Gartner expects global IT spending to grow 6.2% this year to $3.9 trillion.
That said, investors must be judicious in picking software stocks. There are many stocks for which their high valuation multiples are unjustified given their weak fundamentals.
Bill.Com Holdings, Inc. (BILL – Get Rating), Coupa Software Incorporated (COUP – Get Rating), MongoDB, Inc. (MDB – Get Rating), and Lightspeed POS Inc. (LSPD – Get Rating) are four such software companies. We think investors should avoid them now.
BILL provides cloud-based software solutions. It simplifies, digitizes, and automates complex back-office financial operations for SMBs. BILL’s software helps customers to generate and process invoices, streamline approvals, send and receive payments, sync with their accounting system, and manage their cash.
During the second quarter, ended December 31, 2020, BILL climbed 38% year-over-year to $54 million. Its core revenue, which includes subscription and transaction fees, rose 59% to $52.3 million. Simultaneously, its subscription fees increased to $26.6 million. Its loss per share contracted to $0.21 from $0.34 posted in the same period last year. Conversely, its loss from operations expanded to $14.2 million from $7.9 million due to rise in research and development expenses. While BILL is on a growth trajectory thanks to its robust financials, it also has a stretched valuation now. Its ev/sales ratio of 61.30x is much higher than the industry average 4.70x.
Analysts expect BILL’s revenue for the quarter ended June 30, 2021 to be $57.2 million, representing a 35.9% increase year-over-year. Its EPS is likely to grow at the rate of 30% per annum over the next five years.
BILL ended yesterday’s trading session at $151.96, surging 287.4% over the past year. During the past six months, BILL climbed 59.7%.
BILL’s POWR Ratings represent a bleak picture. The stock has an overall F rating, which translates to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
It has an F grade for Value and a D grade for Growth and Stability. It is ranked #109 of 114 stocks in the D-rated Software – Application industry.
Click here to see the additional POWR Ratings for BILL (Momentum, Quality, and Sentiment).
COUP markets a cloud-based spend management platform that connects organizations with suppliers globally and provides greater visibility and control over how companies spend money. It also helps businesses to achieve savings to drive profitability.
COUP’s revenue during the fourth quarter, ended January 31, 2020, increased 47% year-over-year to $163.5 million. Its subscription revenues rose 37% to $134.9 million. However, the company’s operating loss expanded to $95.4 million from $15.9 million. Its loss per share also expanded to $0.85 from $0.38 posted in the prior-year period.
Analysts expect COUP’s revenue for the year ending January 31, 2022 to be…
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