Over the last six months, Asure Software’s shares have sunk to $8, producing a disappointing 12.5% loss - a stark contrast to the S&P 500’s 24.7% 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? See what our analysts have to say in our full research report, it’s free.
Why Do We Think Asure Software Will Underperform?
Even though the stock has become cheaper, we're cautious about Asure Software. Here are three reasons why ASUR doesn't excite us and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance is one signal of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Asure Software grew its sales at a 12.8% annual rate. Although this growth is acceptable on an absolute basis, it fell short of our standards for the software sector, which enjoys a number of secular tailwinds.
2. Weak Billings Point to Soft Demand
Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.
Asure Software’s billings came in at $28.5 million in Q2, and over the last four quarters, its year-on-year growth averaged 7.1%. This performance was underwhelming and suggests that increasing competition is causing challenges in acquiring/retaining customers. 
3. Shrinking Operating Margin
While many software businesses point investors to their adjusted profits, which exclude stock-based compensation (SBC), we prefer GAAP operating margin because SBC is a legitimate expense used to attract and retain talent. This metric shows how much revenue remains after accounting for all core expenses – everything from the cost of goods sold to sales and R&D.
Looking at the trend in its profitability, Asure Software’s operating margin decreased by 3.2 percentage points over the last two years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Asure Software’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers. Its operating margin for the trailing 12 months was negative 10.2%.
Final Judgment
Asure Software falls short of our quality standards. After the recent drawdown, the stock trades at 1.5× forward price-to-sales (or $8 per share). This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are better investments elsewhere. We’d suggest looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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