What happened
Shares of customer-service company TaskUs (TASK 1.88%) popped by as much as 10% Tuesday morning after an analyst initiated coverage of the stock with a buy rating. Given that it's down 65% year to date, its shareholders are surely happy to get a little reprieve. As of 11 a.m. ET, TaskUs stock was up 7%.
So what
According to The Fly, Citi analyst Ryan Potter cited a "steep valuation discount" as one reason for his buy rating on TaskUs. He also gave it a price target of $28 per share, about 45% higher than where it trades right now. Granted, Potter's price target is merely his opinion. But TaskUs is a small-cap company, and lightly traded, so when someone as prominent as Potter shares such a strong positive opinion about it with investors, it can move the stock.
Now what
To Potter's point regarding valuation, I agree that TaskUs stock does look inexpensive now. It trades at a price-to-sales valuation of just 2, which is a typical ratio for a low-growth business. TaskUs, however, is still growing rapidly, as the following chart shows.
TASK PS Ratio data by YCharts
In its first-quarter report, TaskUs management guided for approximately 30% revenue growth this year -- a good enough rate to support Potter's bullish stance. However, one thing to keep in mind is that the company focuses on serving high-growth tech companies, and recent announcements in the tech space suggest business has significantly slowed in general. Therefore, it's possible that business growth for TaskUs will start to slow as well, justifying its lower valuation in the end.
TaskUs is expected to report its second-quarter financial results in August.
