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Why Slack Technologies Stock Surged 31.3% in May

By Billy Duberstein – Jun 4, 2020 at 8:05AM

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Slack’s leading communications software has made it a COVID-19 favorite among work-from-home stocks.

What happened

Shares of Slack Technologies (WORK) rose 31.3% in May, according to data from S&P Global Market Intelligence. The business messaging software-as-a-service (SaaS) company continued to capitalize on investor optimism for next-gen tools that enable working from home.

While quarantines are now being lifted across the country, many think the work-from-home trend is here to stay, fueling Slack's rise since the March market meltdown. The stock price had actually tumbled since its direct public offering (DPO) approximately one year ago, but this month's surge led it right back to where it was trading when the hot growth stock started trading.

A screenshot of  Slack's PC interface.

Image source: Slack Technologies.

So what

Slack didn't actually release any new financial data during the month, though many other cloud software stocks did, and generally with strong results. As such, Slack mostly rose in sympathy with the cloud SaaS bull market that began in April. Slack had also guided very conservatively on its last earnings call back in March, sending shares plummeting, leading to a nice setup for a rise in April and then May.

Additionally, third-party research platform Thinknum reported an acceleration in Google Play store ratings, LinkedIn head count, and new job postings, giving more proof points to the Slack growth story.

Now what

Slack actually reports earnings later today, June 4. Analysts are expecting $188.1 million in sales and a loss per share of $0.06. If recent results of other work-from-home software stocks are any indication, look for Slack to beat expectations. But since the stock has already had such a strong run and trades at a lofty price-to-sales ratio of 23.5, anything less than a beat could lead to a sell-off. 

In the long run, look for Slack to be a battleground stock as a leader in next-gen business communications software, but with formidable competition from large-cap tech names on its heels.

Billy Duberstein has no position in any of the stocks mentioned. His clients may own shares of some of the companies mentioned. The Motley Fool owns shares of and recommends Slack Technologies. The Motley Fool has a disclosure policy.

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