Smartsheet (SMAR) Stock: Here are the factors to consider before investing

It is estimated that the global task management software market will grow in double-digits in the coming years. Smartsheet, Inc. (NYSE: SMAR), a market leader in team collaboration solutions, has been riding the pandemic-driven shift to digital workplace.

Is SMAR a Buy?

The Bellevue-based tech firm raised its market value steadily since early last year and the stock reached new highs.  This week’s post-earnings pullback looks short-lived — experts see the recent uptrend continuing and the stock gaining in double digits in the near future. Currently, the average rating on SMAR is moderate buy. The stock emerged stronger from the tech-led selloff a few months ago, but the valuation looks favorable from an investment perspective.

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Read management/analysts’ comments on Smartsheet’s Q2 report

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The company witnessed strong adoption during the pandemic amid elevated demand for solutions for managing tasks and automating workflows effectively. The clientele includes several big corporates that contribute significantly to annual recurring revenue growth, and their number is rising. Smartsheet’s fundamentals are pretty strong, thanks to its unique portfolio that is expected to become more relevant in the coming years, especially in the wake of the remote work shift.   

From Smartsheet’s Q2 2022 earnings conference call:

“At its core, Smartsheet is an enterprise-grade dynamic work management platform designed to empower business users to transform how they work. We go to market using a land-and-expand model that often starts with a team or department choosing Smartsheet to solve a transactional use case like project management, task tracking, or goal management. This solution then grows through a low-friction, viral motion when users share their work and engage with those inside and outside of their organization.”

Competition

However, the changing market conditions, especially after the coronavirus outbreak, would demand continued innovation so as to align the business with the global shift to hybrid solutions. Also, the company might face increased competition going forward from the likes of Asana (NYSE: ASAN) and Trello, given the growing demand for the solutions it offers. As a result, there will be pricing pressures that would in turn weigh on margins.

More than four years after becoming a public entity, Smartsheet is yet to become profitable, which could be a concern for shareholders and prospective investors. However, the bottom-line numbers have regularly beaten the Street view over the past several years.

Elusive Profit

For the second quarter, the company reported an adjusted loss of 5 cents per share, which marked a modest improvement from last year’s loss per share of 6 cents. Experts had forecast a wider loss for the most recent quarter.  At $131.7 million, July-quarter revenues were up 44% from the year-ago period and above the market’s projection.

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ServiceNow Q2 2022 Earnings Call Transcript

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There was a modest improvement in cash position on a year-over-year basis. For fiscal 2022, the management predicts loss per share in the range of $0.44 per share to $0.36 per share, on revenues of $530-533 million.

Stock Performance

After paring most of the recent losses, Smartsheet’s stock is currently trading close to the all-time highs seen in February. It suffered a selloff this week soon after the earnings announcement. The shares have gained 25% in the past six months.