Coupa Software Incorporated (COUP) in San Mateo, Calif., provides business spend management solutions to enterprises globally. COUP’s customer base includes retail, healthcare, manufacturing, and technology companies. The company was named a leader in the 2021 Procure-to-Pay Suites category by Gartner for the sixth time in a row. 

However, COUP has an ISS Governance QualityScore of 6, indicating relatively high governance risk.

Shares of COUP have declined 54.6% in price year-to-date and 28.5% over the past month to close yesterday’s trading session at $154.01. Furthermore, the stock is currently trading below its 50-day and 200-day moving averages of 218.22 and $238.58, respectively, indicating a death-cross downtrend.

Click here to check out our Software Industry Report for 2021

Here is what could shape COUP’s performance in the near term:

Poor Financials

For its fiscal year 2022 second quarter, ended October 31, 2021, COUP’s revenues increased 40% year-over-year to $185.80 million. This can be attributed to a 40% rise in subscription revenues. However, the company’s operating loss widened 67% from the same period last year to $56.10 million. Its net loss worsened 50% from the prior-year quarter to $91.20 million. And its loss per share came in at $1.23, missing the consensus EPS estimate of $0.03.

Negative Profit Margins and Book Value Per Share

COUP’s trailing-12-month net income margin is negative 49.52%, while its EBIT margin is negative 35.85%. Its ROE, ROTC, and ROA stand at negative 49.68%, 6.94%, and 5.77%, respectively.

In addition, COUP’s book value per share is negative, indicating that the company’s total liabilities are greater than its assets. And its  total debt-to-equity is 172.58%.

Bleak Earnings Growth Prospects

While analysts expect COUP’s revenues to grow in the coming quarters, the company’s bottom line is expected to worsen in the near term. Analysts expect COUP’s EPS to decline 76.5% year-over-year in its fiscal fourth quarter (ending January 2022), 28.6% in the next quarter, and 15.6% in the current year.

Stretched Valuation

In terms of forward non-GAAP P/E, COUP is currently trading at 225.08x, which is 830.2% higher than the 24.20x industry average. Its 7.5 forward non-GAAP PEG multiple  is 368.1% higher than the 1.6 industry average.

Also, COUP’s 104.17 and 60.87 respective forward Price/Cash Flow and EV/EBITDA ratios are significantly higher than the 23.01 and 16.42 industry averages.

Unfavorable POWR Ratings

COUP has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a D grade for Value, Stability, and Quality. COUP’s higher-than-industry valuation metrics and 1.42 beta justify its Value and Stability grades. Moreover, the company’s negative profit margins are in sync with the Quality grade.

Of the 60 stocks in the D-rated Software – Business industry, COUP is ranked #53.

In addition to the grades I have highlighted, one can view COUP ratings for Growth, Momentum, and Sentiment here.

Bottom Line

COUP has gained market share rapidly due to its unique product and services portfolio. This is evident in its impressive top-line growth in the last quarter. However, because the company focuses on business development and expansion, its weak fundamentals are causing its profit margins to decline. Moreover, as the tech industry slows down due to hawkish U.S. monetary policy and surging market volatility, the immensely overvalued COUP stock might witness a sharp pullback soon. Thus, we think the stock is best avoided now.

How Does Coupang Software Incorporated (COUP) Stack Up Against its Peers?

While COUP has a D rating in our proprietary rating system, one  might want to consider looking at its industry peers, Rimini Street, Inc. (RMNI), SS&C Technologies Holdings, Inc. (SSNC), and CSG Systems International, Inc. (CSGS), which have an A (Strong Buy) rating.

Click here to check out our Software Industry Report for 2021

COUP shares were trading at $151.82 per share on Tuesday afternoon, down $2.19 (-1.42%). Year-to-date, COUP has declined -55.20%, versus a 24.52% rise in the benchmark S&P 500 index during the same period.

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

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