In this piece, I evaluated two project management stocks, Atlassian (NASDAQ:TEAM) and Asana (NYSE:ASAN), using TipRanks’ comparison tool to determine which is better. Atlassian is up 39% year-to-date but only 5.7% over the last year, while Asana has gained 68% year-to-date and is up 23% over the past year.
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Both Atlassian and Asana are software companies. Atlassian develops products for software developers and project managers, and Asana offers a work management platform designed to facilitate teamwork and task orchestration.
However, neither company is profitable, so the price-to-sales (P/S) ratio will be used to gauge valuation. The U.S. application software industry is trading at a P/S of 7.6 versus its three-year average of 10.1. With such sizable year-to-date gains in both stocks, a closer look is needed to determine which might be the better deal.
Atlassian (NASDAQ:TEAM)
At a P/S of 13.5, Atlassian looks significantly overvalued versus its industry, especially considering the explosion in its operating expenses in 2022. While that’s not unusual in the tech industry right now, the company’s persistent lack of profitability despite its steady revenue growth is a concern when combined with the high P/S multiple. Thus, a bearish view looks appropriate.
Atlassian exemplifies the growth-at-any-cost mindset, given its steady revenue growth in the roughly 30% range over the last few years at the expense of profits. In fact, the company has made no progress on profitability over that time frame, generating net income margins of -22% in 2020 and 2022 and -33% in 2021. Thus, one has to wonder where management will draw the line and decide that profits matter.
Essentially, investors must decide whether a company that’s losing over $600 million a year on $3 billion in revenue deserves a market capitalization of $45 billion. In some market regimes in which euphoria around growth stocks rules, that may be the case. However, I’m not convinced this will remain acceptable in the near term, given the persistent inflation and the Federal Reserve’s insistence on hiking interest rates into a recession.
Finally, insiders seem convinced that Atlassian could be fairly priced or overvalued, given the $95.3 million worth of shares sold over the last three months. Over the past week or so, insiders’ preset trading plans have triggered multiple auto-sells in the company’s shares.
What is the Price Target for TEAM Stock?
Atlassian has a Moderate Buy consensus rating based on eight Buys, eight Holds, and zero Sell ratings assigned over the last three months. At $176.79, the average Atlassian stock price target implies downside potential of 2.15%.
Asana (NYSE:ASAN)
At a P/S of 9.0, Asana immediately looks better in the valuation department. While it’s overvalued versus the application software industry’s current valuation, Asana is undervalued versus the industry’s three-year valuation. Thus, a neutral view looks appropriate for now, although this stock could be worth monitoring over the long term.
Asana has some of the same arguments against it as Atlassian, although its revenue growth has been significantly larger, as it’s off a much smaller base. However, Asana’s revenue growth has been decelerating over the last few years, which might signal concern over the long term.
Positively, the company managed to avoid the surge in operating expenses most tech companies experienced in 2022. Nonetheless, while Asana’s net income margins are improving steadily, they were still at -75% in 2022 and -64% for the last 12 months.
Also, insiders have sold over $500,000 worth of Asana shares over the last three months, although there have been some auto-buys triggered over the last month or so. Interestingly, insiders sold some shares in non-open market transactions about 30 days ago — when the stock was trading at a lower price than where it stands now.
What is the Price Target for ASAN Stock?
Asana has a Hold consensus rating based on three Buys, six Holds, and one Sell rating assigned over the last three months. At $23.11, the average Asana stock price target implies downside potential of 6%.
Conclusion: Bearish on TEAM, Neutral on ASAN
Atlassian and Asana share many similarities, although Atlassian is much larger than Asana. On the one hand, both are growth stocks, which have been outperforming this year.
However, on the other hand, Atlassian just looks overvalued compared to Asana. Additionally, if insider sales are anything to go by, even company management is predicting that their companies’ stocks don’t have any further to rise in the near term.
