What happened
Shares of workplace management platform Asana (ASAN -1.02%) advanced 30.8% in October, according to data from S&P Global Market Intelligence. The stock got an analyst upgrade last month and was buoyed by the resurgence of growth stocks. Also, the company announced new collaborations for its partner ecosystem.
So what
On Oct. 25, shares of Asana jumped after Morgan Stanley raised its price target on the stock from $37 to $151 a share. Even after the price increase last month, Asana only trades at around $131 a share, so this upgrade likely caused other investors to become bullish on Asana stock.
Image source: Getty Images.
On top of this upgrade, Asana has followed in line with the recovery of growth stocks in October. Over the last month, the S&P 500 index was up 5.76%. This rapid recovery for the broad market last month, on top of the analyst upgrade, is a combination that can shoot a stock like Asana up so much in such a short time period.
Lastly, in October, Asana announced it was adding new security partners like Splunk and Netskope to its Asana partner ecosystem. While this is not material financial information, these partners will likely improve the value proposition of using Asana's workflow system, which could have been a bullish signal to investors.
Now what
With the stock moving up so much in October, Asana is now extremely expensive compared to almost any other company trading today. At a market cap of $23.5 billion, it has a trailing price-to-sales ratio (P/S) of 80. Yes, the company is growing revenue 60% year over year, but no matter how you slice it, a P/S of 80 is ridiculous. Unless you believe Asana can rapidly lift its annual revenue by a multiple of 10, there is no way this stock price currently makes sense, meaning it is likely not smart for investors to buy Asana stock right now.
