Buy Slack Technologies at your own risk, this portfolio manager says

Shares of Slack Technologies (Slack Technologies Stock Quote, Chart, News NYSE:WORK) have just about returned to their launch price of a year ago, so what’s ahead for the name?

Who knows, says portfolio manager Jason Mann, but the more recent movement in the market away from high growth, pandemic-resistant stocks should give investors some pause.

“This is definitely a work from home beneficiary,” says Mann, chief investment officer at EdgeHill Partners, speaking to BNN Bloomberg on Thursday. “Honestly, it’s anyone's guess when it comes to the short term nature.”

“I will say that in the last three or four days you've seen a pretty marked sell off or at least an underperformance of a lot of these growth stocks,” Mann says. “There’s been a real rotation out of some of the high fliers that initially led this market higher on the bounce and into some of the more beaten down cyclical sectors like airlines and cruise ships.”

Slack has been a business favourite chat platform for a number of years now and so it was with some fanfare that the stock DPO’d — through a direct public offering rather than an IPO — last June. But like a number of the high-profile tech debuts last year, Slack sunk like a rock, going from an initial $38.50 per share to as low as $20 by November.

Not much changed until COVID-19 hit and Slack started climbing in March, dragged along in the sea of money flowing towards stocks and companies, many of them tech names, expected to prosper both during the pandemic and beyond, as more and more businesses start to shift their workforces to permanently remote.
Since mid-May, Slack has gained over 30 per cent in value and is now back around the $38 mark.

And while the stock could keep climbing, Mann says there’s a lot of risk with an unproven name like Slack.

“The problem when you get valuations as high as you have with a company like Slack is it really doesn't have meaningful earnings to look at. It’s 18x sales — you really are priced for perfection,” Mann says. “So any earnings report that is not absolutely stellar, the stock’s going to sell off.”

“So it's certainly not something we hold because of the valuation, but from a day-trading perspective, this has been the space. We'll let braver braver men than us trade these types of stocks on that short term time frame,” Mann says.

Slack reported first quarter fiscal 2020 financials on Thursday, beating analysts’ projections for both revenue and earnings. The company had a loss of $0.02 per share on revenue of $201.7 million, a top line that represented a 50 per cent increase year-over-year.

Analysts had been expecting a loss of $0.06 per share on revenue of $188.1 million. CEO and co-founder Stewart Butterfield called it a phenomenal quarter for Slack, which added 12,000 net new Paid Customers.

“We believe the long-term impact the three months and counting of working from home will have on the way we work is of generational magnitude,” said Butterfield in the company’s press release. “This will continue to catalyze adoption for the new category of channel-based messaging platforms we created and for which we are still the only enterprise-grade offering.”