Investors are starting to see some mixed messages from Wall Street when it comes to Slack Technologies (NYSE:WORK). Some commentary paints a dire picture for WORK stock. It suggests that the collaboration platform that made Slack so popular for businesses is being copied by well-funded competitors. Then there’s other commentary that suggests that Slack stock is undervalued now. In fact, it may have upside as great as 33%.
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As an investor, it’s important to cut through the chatter and take a close look at Slack stock if you’re deciding whether it’s a good fit for your portfolio. WORK stock has a “B” rating in my Portfolio Grader and a “buy” recommendation.
Let’s dig a little deeper.
For the uninitiated, Slack is a workplace collaboration tool that was gaining in popularity even before the novel coronavirus pandemic. It operates as an app on computers and mobile devices. It also works seamlessly in web browsers in case you don’t want to download another app to your computer.
Slack users create channels in which team members can chat, exchange documents and participate in both audio and video calls.
It’s much more convenient than email, and settings allow users to customize the tool so you can get a notification every time you get a message, or snooze or cancel notifications completely.
Channels can be either public or private, and many companies use them not only for work but also as a place to allow employees to talk about current events or hobbies. Users can also send direct messages to team members rather than having them in a public or private channel.
Conflicting Slack Commentary
The last time I wrote about Slack, some damaging commentary from Morgan Stanley had just been released. Analyst Keith Weiss issued a downgrade for WORK stock. He cut his rating to “underweight” and set a price target of $27.
Weiss said that his concern for Slack rested in his belief that demand for work-from-home collaboration was going to actually hurt Slack. He argued that Slack is failing to make a strong case to businesses that its collaboration network is a good solution for dealing with a work-from-home environment.
He went on to say that competition from Microsoft (NASDAQ:MSFT) Teams, among others, is snapping up spending by companies that are adapting to the work-from-home environment. And most damning, he fears those companies will not be convinced to switch to Slack after the pandemic is over and companies return to their offices.
But that’s not the end of the story.
Barclays analyst Raimo Lenschow raised the firm’s price outlook on Slack from $31 per share to $36, while maintaining an “overweight” rating.
Considering that Slack stock is trading now at about $27, the firm’s upgrade represents a more than 33% upside.
So, which should investors believe?
WORK Stock at a Glance
The answer, like most things, is to accept both with a healthy dose of skepticism.
Yes, companies such as Microsoft are gearing up their work-from-home collaboration solutions in the face of the global pandemic. Companies transitioned to a virtual workplace months ago, and it’s likely that some of them will remain remote once a vaccine for Covid-19 is widely available.
But I’m not one who thinks that spells the end for the Slack growth story.
In its most recent quarter, which was for fiscal Q2 2021, Slack reported revenue of $215.9 million — a 49% year-over-year increase. The company also reported 130,000 paid customers, which is a 30% year-over-year increase.
Sixty-five Fortune 500 companies use Slack to help their employees collaborate.
I’m also enthusiastic about Slack Connect, which is the company’s relatively new feature. Slack Connect is designed to help people collaborate within Slack channels with people in other organizations.
That’s hugely important when dealing with other companies, contractors or vendors with whom your company has a steady relationship.
“We also believe it serves as a key product differentiator and an important factor in retention,” CEO Stuart Butterfield said. “Connect provides a very rare combination in enterprise software: a giant leap forward in both end user experience and security and compliance. Whereas so often customers are asked to trade one off for the other, we can provide both.”
The Bottom Line
Yes, Slack faces some competition, and analysts are split on its prospects. But there are plenty of reasons to believe that Slack will be able to keep its own niche from other conferencing and teamwork platforms.
At its current price of $27, Slack is an attractive buy for investors who believe in the future of WORK stock.
On the date of publication, Louis Navellier owned shares of MSFT. On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the other securities mentioned in this article.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.
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