The last several weeks have been rough for tech investors, as many richly valued growth stocks have seen their share prices fall sharply, in some cases by more than 10% in a single day. No one likes to see red in their portfolio, but those bad days are the price of admission if you want to participate in the stock market. Sooner or later, it happens to everyone.
That's why a long-term investing mindset is so critical. Despite the recent sell-off, the S&P 500 Information Technology sector has produced a 150% return over the last three years. That's more than double the 70% return generated by the broader S&P 500. That outperformance makes a strong case for owning a few tech stocks, and sell-offs are often a great time to buy a few shares on sale.
For instance, Coupa Software (COUP) is disrupting the enterprise software space, and the share price currently sits about 55% below its all-time high. Here's why this stock looks like a smart long-term investment.
The industry leader
Coupa specializes in business spend management (BSM), a category of enterprise software concerned with procurement, invoicing, employee expenses, and payment. Traditionally, organizations have used enterprise resource planning (ERP) add-ons and procurement software to manage those things -- in fact, many still do. But Coupa's cloud-based BSM suite eliminates complexity by unifying all spend-related processes. That improves visibility and control for clients, helping them save money and build more robust supply chains.
Specifically, Coupa's platform works like an e-commerce site, connecting over 2,000 buyers (clients) to 2 million suppliers. The company uses its scale to negotiate discounts with suppliers, which means clients benefit from immediate cost-savings opportunities. But Coupa also allows businesses to source goods together, meaning they can aggregate their collective purchasing power to realize even greater discounts.
Of course, that creates a network effect, just like any e-commerce marketplace. As more businesses use Coupa, suppliers are increasingly incentivized to join the ecosystem and vice versa. Moreover, every transaction that takes place on the platform feeds data to Coupa's artificial intelligence engine, allowing the company to surface predictive insights related to supply-chain risk or savings opportunities. Research company Gartner recently named Coupa the leader in the procure-to-pay industry, citing those real-time AI-powered insights as a key differentiator.
Strong financial performance
During the most recent quarter, Coupa posted strong financial results. Top-line growth accelerated to 40%, as revenue came in at $186 million. The company's generally accepted accounting principles (GAAP) loss widened to $1.23 per diluted share, but cash from operations jumped 63% to $31 million, evidencing a sustainable business model. And as Coupa continues to scale its business, it should eventually achieve GAAP profitability.
On that note, management puts its market opportunity at 100,000 customers, or $94 billion, approximately 50 times its current clientele and 150 times its trailing 12-month revenue. That leaves plenty of room for growth, and the supply chain disruptions that are currently wreaking havoc across numerous industries represent a potential catalyst for Coupa.
More broadly, the company has established itself as the industry leader. As more organizations realize the value of a stand-alone BSM platform rather than relying on rudimentary add-ons to ERP systems, Coupa is well-positioned to succeed. That's why investors should consider buying this beaten-down tech stock.