New Constructs CEO David Trainer added Atlassian Corp TEAM and Okta Inc OKTA to his Zombie Stock list. Atlassian shares are down 63.1% and Okta shares are down 71.1% year-to-date, but Trainer said this week both stocks may still have more pain ahead.
Atlassian Struggling: Trainer's bear case on Atlassian was based on a breakdown of the company's fundamentals since the beginning of fiscal 2022. He said Atlassian's net operating profit after-tax (NOPAT) margin has dropped from 5% in fiscal 2021 to -6% in the past 12 months.
Unfortunately, rising interest rates mean the company can no longer access cheap capital, and Trainer said Atlassian has burned through $838 million in cash since the first quarter of fiscal 2021.
"Companies that inherently struggle to produce real cash flows, like Atlassian, are at risk of seeing their stock price go to $0," Trainer said.
Okta's Cash Burn: He said Okta was also burning cash at an alarming rate with no end in sight. The company burned $3.8 billion in free cash flow since 2018, and the company was facing stiff competition from larger, more profitable companies, such as Microsoft Corp MSFT and Oracle Corporation ORCL. Trainer estimated Microsoft's NOPAT margin was 35%, Oracle's was 30% and Okta's was -52%.
"While Okta will struggle to fund its cash burn, its profitable competition will be better positioned to increase market share," Trainer said.
Benzinga's Take: Regardless of whether Atlassian or Okta shares eventually drop to zero, there's not much to like about the direction in which the companies or their stocks are headed at the moment.
Trainer has been dead-on so far in 2022 with similar bearish calls on stocks such as Blue Apron Holdings Inc APRN and AMC Entertainment Holdings Inc AMC, so investors should certainly think twice before buying the dips in Atlassian or Okta.
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