Asana is Proof That Insiders Can’t Save Expensive Stocks

Asana
asana.com

As you know, I’m always interested in corporate insiders’ buying and selling actions. When a CEO or CFO buys up shares of their stock, I’m intrigued. Insiders can be a very important signal… but the action alone is not enough. One must dig deeper and ask questions about every single acquisition.

Is the CEO buying because they believe the stock is cheap? Are they buying because they’re obligated to own a specific number of shares? Or are they just buying shares because they have a spare $37 million and don’t want to purchase another house? If the CEO’s name is Dustin Moskowitz, a co-founder of Facebook, it might be the latter. And that’s why I avoided a big selloff in his stock on Thursday.

Asana Takes a Hit

Today, shares of Asana Inc. (ASAN) fell more than 22% after the company reported an ugly earnings report and received a series of price and rating downgrades. As a result, shares finished the day under $38. Back in November 2021, shares traded north of $145.00. Oh my. I’ll explain what went wrong. But first, if you haven’t used Asana, consider yourself lucky. 

Asana is a platform that allows company teams to organize, track, and manage their work. For example, if you’re working on a project, the bean counter in charge of tracking your progress uses the platform. Are you 20% complete? 30% complete? Will you remember that you have a check-in call with someone on Thursday at 9:30 am? Will you remember that you have to provide an update to so-and-so by Friday at 12? 

Don’t worry… it’s all right there. If you hate micromanagement (have you noticed that I have a personality that disdains it?), you’ll hate Asana. If you’re a person who likes to color-code meetings, organize every 15 minutes of your day, and check off progress boxes after each small milestone, then Asana will keep things in one place and prevent anxiety from swallowing you whole.

However, the company doesn’t exactly have any serious barriers to entry. New management software isn’t hard to find. Back in the day, when I worked in consulting, we used similar software to track progress on projects. I’ve gone through dozens of these management tools.

Asana Stock Price

This stock received a big boost during the COVID-19 pandemic because of the number of people working from home. And with that work-from-home trend expected to continue despite the reopening of the economy, shares continued to experience a wave of insider buying.

Asana CEO Dustin Moskowitz has been purchasing shares aggressively since last June, enjoying the rise of shares during the final months of last year, but still buying despite the ongoing selloff through the first two months of 2022.  

It appears that Moskowitz’s buying has less to do with identifying whether or not the stock is a value and more to do with cementing greater control of the company (He is the Chairman, CEO, and a 10% owner). SEC Form 4 documents show that Moskowitz would buy hundreds of thousands of Asana shares at a time regardless of the stock price several times a month.

So, I had to stop thinking about Moskowitz as a signal on this stock. Instead, I needed to look at something else… Something that raised my eyebrows. The balance sheet.

ASAN is a Volatile Stock

Asana was a darling of the 2020-2021 market run. Investors didn’t care that the company operated on a high growth rate, a complete lack of profitability, and an extreme trading multiple around its revenue. Think back to the Dot-Com bubble, and investors ignored that so many newly public companies lacked any profits. They were speculating on the fact that one day the company might be able to cut costs and turn on profitability.

That same problem hit Asana. Today, shares fell another 6% after a colossal crash last week after earnings. Shares are off more than 54% since January. Even after the big drop in the stock, shares are still trading at an insane price-to-sales ratio of 16. This is a significant level and one that investors should avoid in a down market. 

But anyone who was looking at Dustin Moskowitz load up on stock should have looked at the balance sheet. The numbers… Earnings per share are projected in negative levels though January 2025. So, while the Fed is about to hike rates, investors can anticipate that this extremely expensive stock with massively negative margins (the latest was -70%) will continue to lose money for at least three more years. Remember, this company operates in a sector with low barriers to entry. 

In Conclusion

I don’t know what Moskowitz is doing… but I’m not following him into this stock. Just because an insider is buying doesn’t mean that you should follow them. It’s important to look under the hood and understand the broader market conditions and… of course… the rationale for the buying.

With momentum negative right now in the middle of quad witching week, cash remains your best friend. Remember to check the multiples before you buy any stock. Anything trading over a P/S of 20 is asking for trouble. Stay safe right now.

Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.
Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.

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