Asana, Inc. (NYSE:ASAN) May Have Run Too Fast Too Soon With Recent 32% Price Plummet

The Asana, Inc. (NYSE:ASAN) share price has softened a substantial 32% over the previous 30 days, handing back much of the gains the stock has made lately. The last month has meant the stock is now only up 3.8% during the last year.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Asana's P/S ratio of 6.1x, since the median price-to-sales (or "P/S") ratio for the Software industry in the United States is also close to 5.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Asana

What Does Asana's Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, Asana has been relatively sluggish. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on Asana will help you uncover what's on the horizon.

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like Asana's is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company managed to grow revenues by a handy 12% last year. Pleasingly, revenue has also lifted 111% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 13% per year during the coming three years according to the analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 21% per year, which is noticeably more attractive.

With this in mind, we find it intriguing that Asana's P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From Asana's P/S?

Asana's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Given that Asana's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Plus, you should also learn about these 4 warning signs we've spotted with Asana.

If these risks are making you reconsider your opinion on Asana, explore our interactive list of high quality stocks to get an idea of what else is out there.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.