Shares of work management platform Asana (NYSE:ASAN) have started 2022 in a slump after roughly doubling in 2021. Since they have a 52-week range of $25.41-$145.79, investors may be wondering why the latest close of $53.08 has ASAN stock about 64% off its highs. Several plausible factors are supporting this sharp selloff. So is ASAN stock a buy now?

It all starts with a basic yet powerful question. Is the business model viable?

Why Use Asana for Business?

Asana offers a work management platform that is versatile and can support multitasking in areas like like marketing; supporting operations and sales; project and campaign management; and tracking of the remote teams in real-time, boosting productivity.

Other essential tasks supported by Asana are automation, reporting insights, and apps integration.

I think Asana’s platform looks like a great product overall. But we need to figure out what its economic moat is and whether is broad or narrow. The answer to this question is that there is a narrow economic moat with few barriers to entry in the market Asana is addressing.

Some notable companies that are competitors to Asana offering a plethora of remote working solutions are Zoom Video Communications (NASDAQ:ZM), Atlassian (NASDAQ:TEAM), Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN).

Some may argue that it is very hard today to find a technology company that has a strong economic moat with high barriers to entry. I agree. Could it be then the case that Asana has a great product, but its stock is not that great?

I argue that this is the real situation right now.

ASAN Stock Third Quarter Fiscal 2022 Results

“Q3 was another strong quarter, led by record user adoption and large enterprise wins,” said Asana Co-Founder and CEO Dustin Moskovitz, co-founder.

Investors were not in agreement with this statement — on the heels of the earnings results, ASAN stock tanked approximately 26%. What was the deeper cause of this selloff?

First, management always tends to be optimistic. Asana reported strong revenue growth, up 70% year over year, reporting “Revenues from customers spending $5,000 or more on an annualized basis grew 96% year over year” and that it “Exceeded two million paid seats.”

The hard truth is that revenue is the start of everything related to financial performance, but at the same time, it can be very misleading. Would you prefer to invest in a company growing revenue at 50% annually and losing money, or in a company that grows at 10% and makes a profit? Ignore valuation for one moment — just think about which of the former scenarios makes sense.

Taking it to another level, the company that is growing too fast but is unprofitable most probably will have a cash problem too, to pay its financial obligations as its free cash flow will likely be negative too. Why? Free cash flow and net income are connected dynamically. Operating cash flows too.

Asana reported a GAAP operating loss of $68.1 million, compared to a GAAP operating loss of $61.9 million in the third quarter of fiscal 2021. Net loss narrowed to $69.3 million from a GAAP net loss of $73.3 million in the third quarter of fiscal 2021.

All the above figures in a quarter of record revenue signal that the business model is flawed. A strong quarter to me would be one that revenue surged, net profitability made a new historic high, free cash flow was positive and profitability margins expanded.

ASAN Stock Risks

Shareholders have been diluted in the past year, with total shares outstanding growing by 17.1%.

Asana is burning cash both annually and quarterly. Is it at least cheap now? ASAN stock is relatively overvalued based on its price-book ratio (40x) compared to the U.S. Software industry average (4.2x).

Analysts expect average EPS of -96 cents, -98 cents and -80 cents for 2022, 2023, and 2024 respectively.

In the end why invest now in a company that is expected to remain unprofitable for at least another two years? Because of its growth? It is not a very sophisticated investment decision. In 2022 the Federal Reserve will shift focus to the valuation of stocks, and this shift has already started. Growth stocks with losses are not only risky but in almost all cases richly valued. I think Asana will have a rocky 2022. And it is more prudent now to avoid it.

On the date of publication, Stavros Georgiadis, CFA  did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.