Just days after getting two bullish ratings from Wall Street, Slack (NYSE:WORK) is getting another vote of confidence. This time around, it's coming from Monness, Crespi, Hardt & Co., Inc. analyst Brian White, who initiated coverage on shares this morning with a buy rating alongside a $39 price target. The stock has been trending steadily lower after going public via a direct listing over the summer.

Is it time to pick up shares?

Slack app interface on Mac

Image source: Slack.

Slack has "struck a chord as a collaboration tool"

It's worth noting that when Slack shares hit the market in June, they opened at $38.50 -- within spitting distance of White's price target. Shares hit $42 on the first day, considerably stretching Slack's valuation as measured by its price-to-sales ratio. Not a lot has changed over the past couple of months in terms of fundamentals, although macroeconomic uncertainties related to President Trump's trade war with China have intensified.

"We believe Slack is one of the next-generation software platforms that leadership at organizations around the world will increasingly equip their employees with during this digital transformation journey," White wrote in a research note to investors. "As evidenced by the 82% revenue growth achieved in FY:19, Slack has clearly struck a chord as a collaboration tool for workers and we believe the evolution of this new software layer in the organization has exciting possibilities."

That largely echoes other bullish folks on Wall Street. Canaccord Genuity analyst Richard Davis predicted in July that Slack will enjoy an "inexorable adoption curve" thanks to its widespread popularity among enterprise users. William Blair analyst Bhavan Suri similarly believes that Slack "will replace or severely displace email over the next several years."

Deceleration is coming

While Slack has been putting up strong growth figures to date, deceleration is in the cards as the enterprise collaboration company grows its revenue base. Revenue grew "just" 67% in the first quarter of fiscal 2020, and the company's guidance for the second quarter calls for revenue to increase 51% to 53% to a range of $139 million to $141 million. Slack will report fiscal second-quarter results next week on Wednesday, Sept. 4, its first release since shares started trading.

Looking farther out, analysts are modeling for total revenue of $600.4 million this fiscal year, which would represent 50% growth over fiscal 2019. Top-line growth is then expected to slow to under 40% in fiscal 2021, with consensus estimates currently calling for $833.9 million in sales that year.

Slack has yet to turn a profit and warned in its prospectus that it will need that growth to cover rising costs. "If our revenue does not increase to offset the expected increases in our operating expenses, we will not be profitable in future periods," the company wrote.

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