Asure trades at $8.21 per share and has stayed right on track with the overall market, losing 5.3% over the last six months while the S&P 500 is down 6.9%. This was partly due to its softer quarterly results and might have investors contemplating their next move.
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Even with the cheaper entry price, we’re cautious about Asure. Here are three reasons why we avoid ASUR and a stock we’d rather own.
Created from the merger of two small workforce management companies in 2007, Asure (NASDAQ:ASUR) provides cloud based payroll and HR software for small and medium-sized businesses (SMBs).
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’s billings came in at $37.28 million in Q4, and over the last four quarters, its year-on-year growth averaged 6.9%. This performance was underwhelming and suggests that increasing competition is causing challenges in acquiring/retaining customers.
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 is one of the best measures of profitability because it shows how much money a company takes home after developing, marketing, and selling its products.
Looking at the trend in its profitability, Asure’s operating margin decreased by 6.4 percentage points over the last year. 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’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 9%.
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
While Asure posted positive free cash flow this quarter, the broader story hasn’t been so clean. Asure’s demanding reinvestments have consumed many resources over the last year, contributing to an average free cash flow margin of negative 1.2%. This means it lit $1.24 of cash on fire for every $100 in revenue.
