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Is being popular enough to make a stock a good investment?

Searches for Asana (ASAN) climbed recently on insider buying.

In his best-selling book, Skin In The Game, author Nassim Taleb proposes the idea that in order for fairness, proper risk management, and optimal results to be achieved—one must have measurable risk when taking a major decision. 

For example, Elon Musk is a man who has skin in the game. While he is constantly criticized for his decision-making at Tesla, there is no one else who owns more shares than him, at 175 million shares. 

But he’s not the only CEO with skin in the game. Former Facebook co-founder, Dustin Moskovitz, is now the CEO of Asana (ASAN), and an owner of 22% of the outstanding shares. 

He’s been buying the dip in his company, but should you consider it as well?

Check out what we think about ASAN    

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Asana’s Business

Asana, Inc. (ASAN) is a SaaS company, which offers a work management platform to individuals, and businesses. 

Since many businesses have adopted a hybrid work model (work from home and office), the ASAN platform allows teams to organize and assign tasks, prioritize and set deadlines. 

Furthermore, the ASAN platform has more than 200 integrations, including Outlook, Box, Office 365, Slack, Zoom, Google Sheets, Tableau, Google Drive, Microsoft Teams, and Gmail to name a few. 

The firm has more than 126K paying customers and millions of teams around the world. Some of its customers include Amazon, Under Armour, Spotify, Procter & Gamble, and Affirm.  

ASAN saw a 73% jump in revenue growth during Q1 FY 23 for customers spending $5K+ annually, with nearly 17K customers.

Financials

Unprofitable tech companies have gotten crushed in 2022. And ASAN is no exception. 

And while the firm is growing strongly, it is burning a lot of cash in the process. 

Furthermore, cash flows from operating activities are negative. In Q1 FY 2023, the firm’s cash flows from operating activities were negative $41.1 million, compared to a negative $7.4 million in the first quarter of fiscal 2022. 

However, the firm has a current ratio of 1.37x, which implies it has enough assets and liquidity to cover any short-term liabilities. 

One could argue that ASAN has an ace card up its sleeve if it ever gets into financial problems. The company’s CEO, Dustin Moskovitz, is the Co-Founder of Facebook, and a multi-billionaire. 

Valuation

Even with shares down more than 75%, the valuation numbers on ASAN are still ugly. 

For example, the company has a price-to-sales ratio of 7.9x, which is significantly higher than the sector median of 2.89x

Its return on assets is a dismal -27%. And an EBITDA of -$301 million. 

One reason investors fell in love with SaaS companies like ASAN and others is because of retention, and high gross profit margins. 

For example, ASAN has a gross profit margin of 89.7%. However, it scores poorly on nearly everything else. Its return on equity is insane at -603.2%. And its net income per employee is -$196K.

Can it grow fast enough to become profitable?

While revenue growth of 65% (YoY) is outstanding, it’s not as good as its competitor, monday.com (MNDY), which is growing revenues at 90% (YoY). 

Our Opinion – 1/10

It takes quite a bit for a well-known company to receive our coveted 1/10 rating. So at least that’s something Asana has going for it…

The company spends more money than it makes. And it is in a competitive niche. The only reason one would consider investing in it is because of its leadership. Dustin Moskovitz is a proven winner with deep pockets. 

He owns 22 million shares, which is A LOT of skin in the game. 

But as the saying goes, if all your friends jump off a bridge would you?