Over the past six months, Asure Software’s shares (currently trading at $7.91) have posted a disappointing 17.1% loss, well below the S&P 500’s 8.4% gain. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy Asure Software, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Asure Software Not Exciting?
Even with the cheaper entry price, we’re sitting this one out for now. Here are three reasons why there are better opportunities than ASUR, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Asure Software grew its sales at a 17.5% compounded annual growth rate. Although this growth is acceptable on an absolute basis, it fell slightly short of our standards for the software sector, which enjoys a number of secular tailwinds.
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Asure Software’s revenue to rise by 10.4%, a slight deceleration versus its 17.5% annualized growth for the past five years. This projection is underwhelming and suggests its products and services will see some demand headwinds.
3. Mediocre Free Cash Flow Margin Limits Reinvestment Potential
Free cash flow isn’t a prominently featured metric in company financials and earnings releases, but we think it’s telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Asure Software has shown weak cash profitability relative to peers over the last year, giving the company fewer opportunities to return capital to shareholders. Its free cash flow margin averaged 5.3%, below what we’d expect for a software business.
Final Judgment
Asure Software isn’t a terrible business, but it doesn’t pass our bar. After the recent drawdown, the stock trades at 1.4× forward price-to-sales (or $7.91 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We’re fairly confident there are better stocks to buy right now. Let us point you toward one of our all-time favorite software stocks.
Stocks We Would Buy Instead of Asure Software
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