Asana's (ASAN) stock jumped 19% on March 9 after the company posted its latest earnings report. For the fourth quarter of fiscal 2023, which ended on Jan. 31, the collaboration software company's revenue rose 34% year over year to $150 million and beat analysts' estimates by $5 million. It narrowed its adjusted net loss from $47 million to $33 million, or $0.15 per share, which also cleared the consensus forecast by $0.12.

For the full year, Asana's revenue increased 45% to $574 million, compared with its 67% growth in fiscal 2022, but its adjusted net loss widened from $163 million to $207 million. Asana is still growing rapidly, but is it too late to buy the stock after its year-to-date rally of about 40%?

Two software developers work on an app together.

Image source: Getty Images.

What does Asana do?

Asana's software enables teams to organize, track, and manage their projects on a unified platform. Its tools can be used to communicate, create projects, delegate tasks, and set deadlines. It served more than 139,000 paying customers at the end of fiscal 2023, compared with about 119,000 paying customers in fiscal 2022.

Asana's tools can be integrated with email apps such as Outlook and Gmail, collaborative platforms such as Microsoft Teams, and cloud-based customer relationship management (CRM) services such as Salesforce. Its top competitors include Atlassian (TEAM 0.23%) and Monday.com (MNDY 0.69%).

Can Asana maintain its momentum?

Asana grew rapidly over the past several years, but it expects its revenue to rise only 17%-18% in fiscal 2024 as its dollar-based net retention rate, which fell from 120% in fiscal 2022 to 115% in fiscal 2023, trends lower.

During the fourth-quarter conference call, CEO Dustin Moskovitz attributed that slowdown to a "challenging macroeconomic environment" that would persist "for the near term." But Moskovitz also said the "need for digital transformation isn't going anywhere," and that its clients were still "making multiyear commitments" to streamline their businesses.

Asana's peers face similar near-term headwinds. Atlassian's revenue rose 34% in fiscal 2022, which ended last June, but it expects just 25% growth in fiscal 2023 as the "macroeconomic environment continues to worsen" in the second half of the year. Monday.com's revenue surged 68% in 2022, but it expects only 33%-34% growth this year.

Can Asana ever turn a profit?

Asana's growth is cooling off, but its margins are gradually expanding as it cuts costs and streamlines its spending. That's why it laid off about 9% of its workforce last November. Its adjusted gross margin expanded from 89.9% in fiscal 2022 to 90.1% in fiscal 2023, while its adjusted operating margin improved from -41.5% to 37.9%.

In fiscal 2024, Asana expects to narrow its adjusted operating loss from $207 million to a range of $120 million to $130 million, which implies that its adjusted operating margin will come in between -18.5% and -20.4%.

Moskovitz claims Asana is making "meaningful progress toward profitability," but it probably won't turn profitable by generally accepted accounting principles (GAAP) or non-GAAP measures anytime soon. By comparison, Atlassian is currently profitable on a non-GAAP basis but unprofitable on a GAAP basis, and Monday.com isn't profitable by either measure. All that red ink could limit the upside potential for Asana and its peers as long as interest rates keep rising.

Is Asana's stock undervalued?

With an enterprise value of $3.7 billion, Asana is valued at 6 times this year's sales. Atlassian and Monday.com have comparable enterprise value-to-revenue ratios of 11 and 7, respectively, relative to their current fiscal years. Therefore, Asana's stock looks a bit cheaper than its industry peers, but it's not a screaming bargain compared to larger digital transformation companies, such as Salesforce, which trades at 5 times this year's sales.

However, over the past 12 months, Asana's insiders bought 19.5 million shares but sold only about 37,000. Many of those purchases can be attributed to Moskovitz, who, during the latest conference call, said the shares were "undervalued." He also pledged to buy another 30 million shares of Asana through a new trading plan to boost his personal stake to about 58%.

It's encouraging when a CEO has that much skin in the game, but I don't think Asana will go much higher over the next few quarters as its revenue growth continues to cool off and its operating margin stays negative. Nonetheless, it's probably not too late to invest in Asana if you believe its growth will accelerate again after the macro-headwinds wane. But for now, investors should curb their expectations for this volatile stock's near-term gains.