Down Over 30%, Is Coupa Software Stock a Buy?

Coupa Software (COUP) just capped off an incredible year with a solid fourth-quarter earnings report. Revenue increased 47% year over year to $164 million as the business expense management software platform continues to benefit from the rapid migration to cloud computing.

Nevertheless, shares are down 35% from all-time highs as of this writing as the sell-off in tech stocks continues. But before buying the dip here, take a hard look at the company's guidance for the year ahead.

Image source: Getty Images.

It's all about the future

First, let's acknowledge Coupa's fantastic run during its latest fiscal year (the 12 months ended Jan. 31, 2021). After delivering 50% sales growth the prior year, the company was able to stack on another top-line gain of 39% in fiscal 2021 as businesses transitioned to cloud-based software. Coupa's platform assists with things like business spending and analytics, product sourcing, and automated invoicing and payments. Given the suddenly remote workforce many organizations have needed to adopt, it's no surprise growth held strong for the company after lockdowns started last spring.  

Data source: Coupa Software. YOY = year-over-year.

But this hyper-growth stock is expecting a slowdown in the year ahead. Management is guiding for "only" 28% year-over-year growth in its fiscal 2022 first quarter and "only" 25% growth for the full year. Coupa, like other cloud computing software firms, has a tendency to under-promise but later over-deliver. However, a cool-off in its growth trajectory is certainly in the works as it starts to lap the initial results from the pandemic a year ago.

Bear in mind this also includes the recent $1.5 billion acquisition of supply chain software company LLamsoft last November. LLamsoft was reporting about $105 million in annual revenue last year, but Coupa will be migrating the company's legacy sales over to a cloud-based model, and it expects that to negatively affect revenue recognition for the next two years.

Many investors feared a slowdown for the company as the economy started to reopen, and some of those headwinds are indeed materializing. While Coupa's upside certainly isn't at risk long term, it does appear some of its future growth was pulled forward during the COVID-19 crisis.

A better deal doesn't mean a good deal

After shares have taken a drubbing in recent weeks, Coupa stock trades for 33 times trailing 12-month sales and 26 times expected fiscal 2022 sales. It's a hefty price-to-sales premium that implies this software firm will continue to expand at a rapid pace for years to come.  

While some tech stocks are deals after the sell-off, this one doesn't look like one of them -- at least not yet. Coupa's growth forecast, including its big acquisition, is underwhelming. Don't get me wrong, I think the deal is a great move for the business, but it nonetheless implies an even sharper deceleration for the company's existing platform.

Perhaps things will pick up the pace again as the year progresses -- Coupa's goal to deliver a long-term average of 30% annual sales growth was reiterated on the last earnings call. But for now, it's too high a price for me to make the jump given the lackluster view for the year ahead.