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Not Cutting Slack Any Slack

Shares are overvalued, and we encourage investors to consider other software stocks.

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Dan Romanoff: We see no-moat Slack as an interesting niche technology company that is more evolutionary than revolutionary. The company offers a collaboration platform focusing on chat that positions itself as a replacement for email.

Shares have come down sharply since the company’s direct listing in June when it closed at $39 per share. Our fair value estimate is $14, so we see more downside still. We would recommend investors look elsewhere as there are better opportunities and risk/reward trade-offs available to them in the software space. We understand why investors are attracted to the stock. After all, there are only so many companies that can grow revenues at faster than 50% at Slack’s size. We find ourselves generally in line with broader Street expectations for growth and margins in the near term but are more cautious on the competitive environment over the medium and longer term.

Dan Romanoff does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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