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This SaaS Stock Is Up 250% in 2021 -- but It Could Still Be a Buy

By Matthew Frankel, CFP® and Rachel Warren – Oct 26, 2021 at 8:31AM

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This company helps workers do their jobs more efficiently and could be a big winner of the digital transformation.

Workplace collaboration software company Asana (ASAN -3.12%) has been one of the best-performing stocks in the tech sector recently, up by more than 250% in 2021 alone. In this Fool Live video clip, recorded on Oct. 4, contributors Rachel Warren and Matt Frankel, CFP, discuss why Asana might still be worth a look at its higher valuation.

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Rachel Warren: So, Asana, ticker symbol ASAN, very well-known company operating within the space of project management software. Shares of the company has seen tremendous growth here today. The stock has risen about 250% since January. The company just became publicly traded in October. Since that time, shares are up about 300%.

The software-as-a-service stocks, I think, have become increasingly popular with investors in recent years as more companies are relying on these businesses to get their work done and streamline operations. One type of software-as-a-service business model that's been increasingly in demand with more companies going remote, just trying to streamline task since they organized or these work management platforms.

Asana was founded in 2008. It's a little newer than a well-known competitor like an Atlassian, which is nearly 20-year-old company known for products like Trello. Another major competitor to Asana is, which is even newer than Asana was founded in 2012 and just went public this last summer, I believe.

Asana, I rank at the top of this list for my personal preference. Partly because of the sector it's in and partly because of the company. I think the software-as-a-service stock sector has so much potential just in this digital age that we live in. Then I also think Asana's doing a really great job of meeting the needs of its customers in this really competitive space.

The project management software market is full of opportunity, was valued at more than $5 billion in 2020, and it's supposed to hit a valuation of nearly $10 billion by the year 2026. A pretty big jump in just a six-year period. Asana task management software is available on web as well as mobile platform and you can create and share projects, break work up into tasks, assign tasks, you can create teams for projects. It has a million different integrations, everything from Microsoft Suite to Google Drive to Salesforce (CRM -0.56%).

One of the reasons a lot of customers tend to choose Asana over, perhaps some of the competitors, not only because it's very easy to use, very user-friendly, I've used it myself, I have found it to definitely be that way. I mean, offers so many different integration. When you're looking at software-as-a-service stocks like Asana and you're viewing company like this in the context of its ability to provide long-term portfolio value, I think it's a good idea to look at what companies are using its products and services.

You look at what customers it has. It gives you an idea of the stock staying power and how much room it has to grow in the industry that it's been. Asana has a pretty impressive list of major name brands that use its management software. We're talking about companies like Amazon, Google, Spotify, Roku, PayPal, Twitter, Adobe, the list goes on. It's very impressive list of customers.

Another factor I like to look at when looking at a company is the company culture. A company is only so good as its leadership. This can be another way to see how a company is doing, not only keeping its customers happy, but keeping its employees happy, too. Earlier this year, Asana announced that for the second year in a row, they were named be No. 1 best workplace in technology, by Fortune and Great Place to Work. A few years ago, Great Place to Work also found that 96% of employees at Asana, think it's a great place to work for us. Versus around 60% at your average company in the U.S.

Asana is growing its revenue at a very fast pace, 2020, which the company reported its fiscal 2021. During that period, its revenue grew 59% from the prior year and its customer base spends more than $5,000 or more annually, increased 85%. More customers spending more money means more revenue for the company. In its most recent quarterly report, Asana said that its revenue grew 72% year-over-year and customers spending $50,000 or more on an annualized basis was up 111% year-over-year.

I think this is a great stock. I love how fast it's growing. I would say the only maybe downside to be aware of but it makes sense given the fact that it's a relatively new company that's growing at the rate it is, is the fact that the company is operating at a net loss on both a GAAP and non-GAAP basis, and cash flows are still negative. But I also think when you consider the first half of this year, the company spent about $121 million in sales and marketing.

It's deploying tons of capital toward growing its business is continuously expanding its integration. The countries that it's available in, it's now available in 13 different languages. I think that in the next few years you're going to see it work a lot more toward getting closer to profitability. It doesn't really concern me at this point. I think when you look at other stocks in this sector, that pretty common trend. I think it's a really great company that's just really starting to realize its growth potential. For anyone who is wondering, I don't think it's too late to invest to see those long-term returns.

Matt Frankel: Awesome. I actually like this and the reason I rank this so highly is I think this stock could be a big winner of the hybrid work environment that we're going to see develop over the next like five years or so. We all know Asana and Atlassian, their competitor, did really well from the transition to remote work whenever one's working from home. As we've seen, companies want to get back in the office. Pretty much every company I know of has announced a return to the office, then delayed it because of the delta surge.

But it's very clear that companies want to be back in the office at least somewhat, but it's not going to be the five-day week work from the office schedule for most people. I think it's going to create a need for more creative solutions to be able to collaborate. I think Asana could be a big winner from that.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Rachel Warren owns shares of Alphabet (A shares) and Amazon. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Asana, Inc., Atlassian, Microsoft, PayPal Holdings, Roku,, Spotify Technology, Twitter, and Ltd. The Motley Fool recommends Adobe Inc. and recommends the following options: long January 2022 $1,920 calls on Amazon, long January 2022 $75 calls on PayPal Holdings, and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

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