In case Workiva Inc. (WK - Free Report) shares are still in your portfolio, it’s high time to get rid of the stock. The odds in favor of an upside in the near term are slim.
The stock has underperformed the industry in the past six months. Workiva’s shares have returned 20.4% in the past six months, compared with the industry’s rally of 25.9%.
Let’s explore the aspects that are responsible for the downslide faced by this Zacks Rank #4 (Sell) stock.
Factors Limiting Growth
Workiva designs and develops a mobile-enabled and cloud-based platform. It aids the customers to collect, report, manage and analyze business data in real time.
The company reported fourth-quarter 2017 loss of 19 cents per share. The figure was significantly wider than the year-ago quarter’s loss of 9 cents.Total revenues however increased 17.5% year over year and 4.6% sequentially to $54.5 million.
Research & development (R&D) expenses as percentage of revenues increased 330 bps. Sales & marketing (S&M) expenses as percentage of revenues increased 80 basis points (bps). General & administrative (G&A) expenses as percentage of revenues increased 240 bps on a year-over-year basis.
The higher operating expenses reflected increase in compensation, travel and consulting expenses as well ascontinuing investment on developing the platform.
The company also provided a disappointing guidance. For first-quarter fiscal 2018 non-GAAP loss is projected to be in the range of 19-20 cents per share. Total revenues are anticipated between $57.3 million and $57.8 million. The Zacks Consensus Estimate for revenues is pegged at $57.63 million. Non-GAAP operating loss is expected in the range of $7.8-$8.3 million.
Workiva continues to spend heavily on developing its flagship product, Wdesk cloud platform. Recently, Wdesk was integrated with Anaplan’s Connected Planning platform to enhance its capabilities. Higher spending on product development is likely to keep margins under pressure at least in the near term.
Furthermore, intensifying competition in the Global Financial Service space from Oracle Hyperion Planning, SAP Business One and Accenture Financial Services, to name some, remains a headwind.
Downward Estimate Revision
Analysts have become increasingly bearish on the stock in the past couple of months with all estimates moving south and no movement in the opposite direction.Estimates for the current quarter and year have moved south in the past 30 days.
The company’s current quarter earnings estimates moved down from a loss of 7 cents to a loss of 19 cents.Further, the company’s fiscal 2018 earnings estimates moved down from a loss of 46 cents to a loss of 79 cents. Considering its weak fundamentals combined with an unfavorable Zacks Rank, Workiva stock is likely to keep underperforming in the quarters ahead.
We expect the aforementioned factors to hurt the company’s near-term profitability. Hence, we recommend investors to be wary of Workiva shares until its Zacks Rank and estimates improve.
Stocks to Consider
In the internet software industry, Paycom Software, Inc. (PAYC - Free Report) , Veeva Systems, Inc. (VEEV - Free Report) and Nice Systems, Ltd. (NICE - Free Report) are better-ranked stocks worth considering. While Paycom and Veeva sport a Zacks Rank #1 (Strong Buy), Nice carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for Paycom, Veeva and Nice are currently pegged at 25.75%, 17.00% and 12.50%, respectively.
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