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Trying to Find Value in Tech Companies That Have Gone Public in 2019: Slack Technologies

While all the news about upstart companies is focused on WeWork's attempted initial public offering, courtesy of SoftBank's (TSE:9984) aggressive valuation, it is easy to miss the other companies that have recently gone public. However, much like WeWork's value, most tech companies that have succeeded in listing their shares in the stock market this year have gone nowhere but south.

The once highly-anticipated Uber (NYSE:UBER) public listing has returned -31% to shareholders since its IPO, and its peer Lyft (NASDAQ:LYFT) has performed similarly. The e-commerce website for pets, Chewy (NYSE:CHWY), lost about 33% since its high, while craft, recipe and image-sharing website Pinterest (NYSE:PINS) has lost nearly a third of its value from its high. The business software platform Slack Technologies (NYSE:WORK) has lost a little more than half of its value since its high.

Slack has gone public without the extravagance of the IPO route, as it chose to made its shares publicly tradable via direct listing instead. The company has done well post-direct listing in terms of beating loss (rather than earnings) expectations in two of its recent quarters. Nonetheless, its stock price has suffered. Slack's stock was priced as high as $42 a share during its listing before plummeting down to its current price of $20.46.

It is also no secret that Slack may have earned some of the much deeper-pocketed tech giants' attention; now, some tech giants are wanting to get in on Slack's business area. Microsoft (NASDAQ:MSFT) offers its Microsoft Teams for its Office 365 users, Alphabet (NASDAQ:GOOGL) has Google Hangouts, Facebook (NASDAQ:FB) has Workplace and Cisco (CSCO) has Webex Teams.

Meanwhile, Slack does not see itself delivering any profit for its current full year outlook, but sees its revenue growing by 51% to 52%. The company also expects $100 million to $110 million free cash flow net burn, or negative free cash flow.

Despite the terrible post-direct listing performance, Slack still appears to be overvalued in terms of its price-sales ratio. The company last traded at 22 times earnings--more than four times Uber's and Lyft's, and six points higher than Pinterest's. Not to be outdone, a profitable peer, Zoom Communications (NASDAQ:ZM), has recently traded at an astonishingly high price-sales ratio of 37 times despite already having dropped more than 40% since its IPO high. Zoom is valued at $17 billion as of late, having generated $7.8 million in profits from $267.8 million in revenue in its six months of operations--a price-earnings ratio of 2,100.

Slack still seem to be overpriced at current levels, despite the already depressed stock price. Unless a turn to profitability story could be announced on the company, the high growth stock remains an easy pass.

Disclosure: Long Alphabet and Facebook.

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This article first appeared on GuruFocus.