Coupa Software Inc (NASDAQ:COUP) engages in the provision of business spend management (BSM) solutions. Its products include invoice, expense, pay, spend analysis, strategic sourcing, contract management contingent workforce, and supplier management. The company was founded by Noah Eisner and Dave Stephens in 2006 and is headquartered in San Mateo, CA.
Coupa Software Inc's stock is trading at $98, as of 21 Mar 2022, and year-to-date (YTD), it is down by 40%. Over the past year, the stock is down by 62% whilst the S&P 500 is up by 13%, meaning the stock has underperformed the market by approximately 75% over this period.
But is Coupa Software Inc worth considering as a long-term investment? Let’s take a look at the company’s outlook based on the most recent financial data to see if we can get any insights.
Why are fundamentals important?
Analyzing a company’s fundamentals gives us key insights into whether or not it will be a good 'buy and hold' investment.
Investors have relied on fundamentals for decades to assess the financial health of an organization as well as its growth prospects. They are a set of key metrics that, when looked at holistically, can tell us whether or not a company is likely to be a good investment over the long term.
There are potentially dozens of fundamental metrics to analyze, but we'll be focusing on the price to earnings ratio (P/E ratio), earnings per share (EPS), price to book value (P/BV) and debt.
What do Coupa Software Inc’s fundamentals tell us about the investment opportunity? Let's have a look.
Coupa Software Inc's stock by the numbers
First of all, let's look at its EPS, which indicates how profitable the company is on a 'per share' basis. This metric is calculated as net income (after dividends on preferred stock) divided by the number of outstanding shares.
Coupa Software Inc's EPS is -5.1, based on its most recent financial statements, and year-on-year, it has fallen by 95%. Frankly, this doesn't give us much encouragement.
Next, let's look at one of the most common valuation metrics - the P/S ratio. It is calculated as the current price divided by sales for the previous 12 months, and helps us get a sense of how much investors are willing to pay for a company's revenues on a 'per dollar' basis.
Coupa Software Inc's P/S ratio is currently 9.2 based on their last reported filings. Compared to the sector-wide average of 9.9, this is 7% lower, indicating that the stock may offer slightly more value compared to other companies in the same sector.
Next, let's look at Coupa Software Inc's price to book value (P/BV), which tells us how much investors are willing to pay for a company's assets. P/BV is used by value investors to identify potential investments, and is calculated by the company's stock price divided by its net assets (or 'book value', meaning the value of all assets which appear 'in its book').
Coupa Software Inc's P/BV is 7.6, based on figures from its last reported balance sheet, which is 26% lower than the industry benchmark of 10.3.
Finally, it's always worth looking at a company's debt profile before deciding to invest in order to assess the risk. A high amount of debt can be a problem if a company is not generating enough cash flow to service its debt, and some sectors rely on debt more heavily than others.
As of 21 Mar 2022, Coupa Software Inc has total debt of $1660M, and this has gone down by 7% over the past year. The company also has cash & short-term investments totalling $729M on-hand, giving it a 'net debt' of $930.337M.
Based on these figures, there's no denying that Coupa Software Inc's current levels of net debt are higher than we would like to see.
Is Coupa Software Inc a buy?
All in all, we’ve noticed some trends at Coupa Software Inc that don't give us much confidence in its prospects as a ‘buy and hold’ investment.
To be more specific, the stock is down by 40% YTD and down by 62% over the past year, which is worrying. Moreover, the company is not showing positive EPS growth y/y, has a higher P/E ratio compared to competitors within the same industry and may be relying on debt a bit too much.
All things considered, this just doesn't give us confidence that the company is on the right track, and at the moment, we're lukewarm on Coupa Software Inc's prospects as a long-term investment.
Keep in mind that this analysis is general in nature. No single ratio or number will give you all of the information you need, and they must be weighed along with other considerations. Please conduct your own due diligence before deciding to invest.