Asana's (ASAN 5.90%) stock price has fallen 46% from its all-time high just over a month ago as more and more growth stocks get hammered in the market. Despite the drop, this is still a high-growth machine in the valuable enterprise market.
What investors are grappling with now is how valuable Asana stock should be. The maker of team-based work management software grew its revenue at an astounding 70% in the third quarter. But even with that strong growth and the recent stock price drop, shares are trading at a lofty price-to-sales ratio of 39.
That's still a rich price, but for a high-quality company like this, it may be worth it.
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Asana's growth machine
You can see below that Asana has grown revenue rapidly since going public, with revenue up 259% since early 2019. It's done this by attracting users with a free version of productivity tools and then upselling business customers. This is a tried and true software as a service (SaaS) model, and Asana is executing extremely well.
ASAN Revenue (Quarterly) data by YCharts
The chart also shows that Asana is still burning through cash as it spends to build more tools and attract customers. This negative cash flow is often overlooked by investors if a company is growing quickly, because a SaaS product like this has more long-term value than what's being spent upfront to attract customers.
Future growth opportunities
What's impressive about Asana's growth potential is that it has a relatively small user base. In the third quarter, paying customers grew to just 114,000, and only 14,143 were spending $5,000 or more. For perspective, a team with 17 people would spend $5,000 for a company business license to Asana, so these aren't exactly huge companies that Asana counts as big customers.
In the U.S. alone, there are 31.7 million small businesses, and at least 6 million have more than one employee. Asana has a tiny fraction of the market today, and with user growth alone it could grow for many years.
On top of just growing users, Asana continues to add features to its product. Forms, timelines, goals, and reporting are getting new and improved features regularly, and that will likely continue, adding even more value to users.
How Asana becomes a multi-bagger
I see two ways Asana could be a multi-bagger stock long-term. One is that it simply continues on its current path and executes well. The company could keep growing its user base and products, and given its current growth rate could have over $1 billion in revenue in just a few years, making its $16 billion market cap a little more palatable.
Another reasonable outcome could be getting acquired by a bigger SaaS company. Asana has an easy-to-use set of tools that could be a great way to onboard small companies into a bigger ecosystem. And with productivity tools being increasingly important as workers are scattered in remote locations, I could see this as an acquisition target in 2022.
But that may be a worst-case scenario for investors. The risk for investors is that the competitors I mentioned buying Asana could choose to just build these tools themselves. Many of the company's tools already exist in large productivity suites, so this is already happening to an extent. Given the opportunity, lots of competitors are going to be trying to add similar tools.
Another reason to buy
To add to the bullish outlook, co-founder and CEO Dustin Moskovitz has bought shares of the stock recently and now owns 43% of the company's shares. Insider buying is usually a good sign, and Moskovitz betting on Asana's future makes this a long-term buy for me.
