TaskUs Inc. (TASK), which is headquartered in New Braunfels, Tex., provides creative and disruptive technology enterprises with outsourced digital services and next-generation customer experience. It delivers customer assistance to fast-growing technology firms, such as Uber Technologies Inc. (UBER), Netflix Inc. (NFLX), Coinbase Global Inc. (COIN), and Zoom Video Communications Inc. (ZM). The company made its stock market debut on June 11, 2021, and thereafter soared nearly 26% in price.

However, the company's shares have plummeted 51.6% over the past three months and 49.9% over the past month to close yesterday's trading session at $27.63.

In addition, Spruce Point Capital Management published a report in which it charged that TASK delivered “overstated and inflated business statements." The short-selling investment research firm alleges that a high concentration of business with a single customer was TASK’s motivation for doing so. Though the company issued a statement dismissing such accusations, the short-selling report has sparked some concerns about the company's prospects.

Here is what could shape TASK's performance in the near term:

Inadequate Financials

TASK's revenue increased 64.2% year-over-year to $201.50 million for the third quarter, ended Sept. 30, 2021. However, its operating expenses grew 74.2% from the prior-year quarter to $184.92 million. The company's cash and cash equivalents declined 43.1% for the nine months ended Sept. 30, 2021, while its net cash used in operating activities was  $63.43 million over this period.

Weak Profitability

TASK's 44.2% trailing-12-months gross profit margin is 11.2% lower than the 49.8% industry average. Also, its ROA and net income margin are negative 8.8% and 9.6%, respectively. Furthermore, its trailing-12-month cash from operations stood at a negative $50.18 million compared to the $118.48 million industry average.

POWR Ratings Reflect Uncertainty

TASK has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. The POWR ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. TASK has a D grade for Quality which is justified given its weak financials and poor profitability.

Among 78 stocks in the D-rated Technology – Services industry, TASK is ranked #61.

Beyond what I have stated above, one can view TASK ratings for Value, Growth, Sentiment, Stability, and Momentum here.

Bottom Line

TASK's shares plunged more than 50% in price over the past three months. In addition, the stock is currently trading below its 50-day and 200-day moving averages of $44.79 and $38.41, respectively, indicating a bearish trend. Furthermore, given the company's weak profit margin, we think the stock is best avoided now.

How Does TaskUS Inc. (TASK) Stack Up Against its Peers?

While TASK has an overall D rating, one might want to consider its industry peers, NetScout Systems Inc. (NTCT), which has an overall A (Strong Buy) rating, and Teradata Corporation (TDC), and Celestica Inc. (CLS), which have an overall B (Buy) rating.

TASK shares were unchanged in premarket trading Friday. Year-to-date, TASK has declined -48.80%, versus a -9.20% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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