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Is Phunware Inc. a Good Investment Right Now?

Phunware is a small-cap technology stock that is a high-risk bet due to its declining revenue, widening losses, and steep valuation.

A small-cap company that operates in the MaaS (multiscreen-as-a-service) space, Phunware Inc. (NASDAQ: PHUN) is an enterprise-facing cloud platform. Valued at a market cap of just $344 million, as of November 9, Phunware provides a portfolio of products and solutions that allows companies to engage, monetize and manage mobile application portfolios at scale.

Moreover, the company is also purchasing Bitcoin in recent months and holds the digital asset on its balance sheet.

Let’s see if Phunware is a stock that you need to buy right now.

The bull case for Phunware stock

Shares of Phunware are up 240% year-to-date and, in fact, rose from $0.85 in August 2021 to an intra-day high of $24 last month. Most of these gains were due to the rumor that Phunware would serve as a tech partner for Donald Trump-backed social-media company TRUTH Social.

Phunware went public three years ago via a SPAC merger and was also involved in Donald Trump’s re-election campaign. According to a report from Market Watch, Phunware then received a $3 million contract from Trump’s manager Brad Parscale. So, there is a good chance for Phunware to gain prominence and bag a big-ticket contract as TRUTH Social looks to scale in the coming years.

Further, earlier this month, Phunware disclosed that it had bought 100 bitcoins for $6.20 million in cash at an average price of $62,030 per token. The company now holds 127 bitcoins that were purchased for $7.75 million, indicating an average purchase price of $61,238. In case, Phunware continues to accumulate the digital asset over time, it will benefit from the rising prices of the cryptocurrency, which is fast gaining traction as an alternate asset class as it is also viewed as a substitute for gold.

The bear case for Phunware stock

Despite its market-beating gains in 2021, Phunware is a company that is fundamentally weak and grossly overvalued. Its revenue has fallen from $30.88 million in 2018 to just $10 million in 2020. Comparatively, its operating losses have widened from $6.86 million to $13 million in the same period.

In the last 12-months, Phunware’s sales and operating loss stood at $8.23 million and $13.77 million, respectively.

Analysts tracking the stock expect Phunware sales to fall by 17.6% year over year to $8.24 million in 2021, valuing the company at a forward price to sales multiple of 41.6x, which is extremely lofty.

The company ended Q2 with a cash balance of $2.71 million and $5.86 million in debt. But, the loss-making entity still spent $6.20 million to purchase bitcoins which means it raised capital to support the expenditures.

Phunware recently disclosed it will sell close to $49.5 million worth of stock, resulting in shareholder dilution.

So, should I buy Phunware stock?

Even if the company partners with TRUTH, it will have to raise additional capital to offset high-cash burn rates. Further, Wall Street expects the stock to decline by more than 40% in the next year. Phunware stock remains a high-risk bet given its weak financials and sky-high multiples.

Quickfire round

Is Phunware stock undervalued?

Phunware is trading at a premium compared to peers

What is Phunware’s stock symbol?

The company’s ticker symbol is PHUN

What is Phunware’s market cap?

Punware is valued at a market cap of $344 million

To find other worthy investments, check out MyWallSt’s shortlist of market-beating stocks. Click here to get free access.

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