What happened

Shares of Coupa Software (NASDAQ:COUP) climbed 29.2% higher in May, according to data provided by S&P Global Market Intelligence. The company didn't report any news during the month, so you wouldn't normally expect that kind of run. But investors these days are keen on cloud-based software companies. Coupa Software's gains in May mirror those of many other companies.

It's led some analysts to say the space is overvalued. But based on May's returns, investors say otherwise.

COUP Chart

COUP data by YCharts.

So what

Coupa reported full-year fiscal 2020 results back in March. At the time, it showed 48% year-over-year revenue growth, generating $345 million. Most of this was subscription-based revenue. The company's net loss by generally accepted accounting principles (GAAP) widened to $91 million, but it was free-cash-flow positive.

With these results, Coupa issued full-year fiscal 2021 expectations including revenue guidance of $488 million to $490 million. That 25% growth rate is a significant drop from fiscal 2020. Consider that Coupa demands a premium valuation -- it currently trades with a forward price-to-sales ratio of 29. 

Typically, stocks with this kind of valuation fall once growth slows. Coupa is bucking that trend by steadily rising since issuing guidance. 

A dollar bill folded into an upward-trending arrow

Image source: Getty Images.

Now what

To be clear, analysts aren't wary of technology stocks like Coupa simply because of the high valuations. Rather, many expect businesses to reduce spending on software in the coming quarters because of the economic uncertainty caused by the coronavirus. This could cause some companies to miss expectations. Indeed, in Coupa's earnings call, it acknowledged that guidance factored in business travel cutbacks, but it could have underestimated the negative impact.

Shareholders will have answers next week. Coupa is schedule to report first-quarter results on June 8. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.