Coupa Software (COUP) counts on virus-related tailwinds. Is the stock a buy?

The widespread disruption caused by the pandemic underscored the need for flawless supply chain channels, and Coupa Software, Inc. (NASDAQ: COUP) had solutions for that. It seems the relevance of the company’s offerings has never been as big as it is now, considering the deepening inventory/production issues and slowdown in corporate spending.

Buy the Dip?

The San Mateo-based firm is a cloud-based SaaS platform offering business spend management solutions. Its stock had an impressive start to the year and reached a record high in mid-February, before entering a downward spiral in the following weeks and retreating to the pre-peak levels. The pullback has created a buying opportunity that would help if used before the stock rebounds from the current dip.

Read Coupa Software’s first-quarter 2022 earnings call transcript

Market watchers see a double-digit gain in the twelve-month period and recommend buying the stock now. Most of the positive factors that drive Coupa’s growth are yet to be factored into the valuation. The management’s favorable dividend policy, marked by regular hikes, also make the stock attractive.

The sideways movement of the stock in recent months, despite the positive financial performance, has come as a surprise to many. The company has been adding new customers regularly and retaining the existing ones, thereby driving strong subscription revenue.  Elevated calculated billings — the change in deferred revenue plus revenue recognized during a period — point to a healthy revenue pipeline. Also, the company’s unique offerings give it a clear edge over rivals like SAP and Oracle Corp. (NYSE: ORCL).

Many of our prospective customers were comfortable with the status quo where Business Spend Management decisions were managed in silos. Now, they get it. They see that decisions around strategy and spend need to be made comprehensively in real time and without barriers getting in the way. At Coupa, we see it is our responsibility to give them a platform to act with speed and agility and we believe there are a number of mega trends that are increasing the demand for our platform and will help drive our growth for years to come.

Rob Bernshteyn, chief executive officer of Coupa Software

Q2 Report on Tap

When the tech firm reports its second-quarter numbers on September 7 after the regular trading hours, the market will be looking for a loss of $0.06 per share that represents a deterioration from last year’s 21-cent earnings. The estimate for revenue is about $163 million.

In the first quarter of fiscal 2022, revenues jumped 40% annually to a record of $167 million. Meanwhile, adjusted earnings dropped to $0.07 per share from 20 cents recorded in the prior-year period as operating costs nearly doubled. But the bottom-line beat analysts’ estimates, as it did in every quarter over the past several years.  

What’s in Store

While supply chain disruption and the general slowdown continue to drive customers to the Coupa platform, it needs to be seen if the trend would be sustained after markets regain normalcy, post-COVID.

Coupa’s shares lost about 27% in the past eight months and mostly languished below their long-term average. Interestingly, they changed course a couple of weeks ago and have made steady gains since then. The stock traded slightly higher in the early hours of Tuesday, after closing the last session at $244.51.