Shares in PowerSchool Holdings Inc. fell to their lowest price since the company’s initial public offering this summer after an analyst report raised questions about the company's growth potential.
Shares in Folsom-based cloud software provider PowerSchool (NYSE: PWSC) closed at $17, down $3.11, or 15.5%, after investment bank Goldman Sachs initiated coverage today with a price target of $17.
Goldman Sachs was the lead underwriter of PowerSchool’s IPO in July.
The public stock offering on July 28 raised $766.1 million, net of underwriting costs and commissions, and was the largest IPO by a Sacramento area company in recent memory.
Along with Goldman, the IPO's underwriters included Barclays, Credit Suisse and UBS.
The offering was priced at $18 per share, and PowerSchool stock rose to as high as $36.56 in August. The decline today marks the first time the shares have fallen below the IPO price.
PowerSchool provides software for K-12 schools and school districts.
Goldman Sachs’ Equity Research paper today for America’s emerging software companies put a "sell" rating on PowerSchool.
It said that the funding environment for K-12 education is “complicated” as school funding comes from a mix of state, local and federal governments.
The report set a 12-month price target of $17 on PowerSchool stock.
Goldman Sachs said it sees PowerSchool as a “dominant provider of student information and learning management systems in K-12 in North America.”
The investment bank said PowerSchool already has an “outsized share in several of its end markets,” that it counts more than 70% of school districts as customers and that it has 93 of the top 100 school districts in the U.S. and Canada as clients.
But the report went on to say that “complex school budgeting” processes and “sticky incumbent technology” limit PowerSchool's ability to cross-sell more of its technology to its existing clients.
Goldman Sachs representatives couldn't be reached to comment on the research report.
PowerSchool representatives also couldn't immediately be reached to comment.
PowerSchool has been on a hiring tear in recent months. It hired 400 people since its IPO and CEO Hardeep Gulati told the Business Journal last month that it was still hiring for more positions. It has more than 3,000 employees.
Gulati said the company has growth potential in cross-selling its products to existing customers, most of whom use just a few of the company's 15 products.
PowerSchool's software is used to support school administrators with a variety of programs that eliminate manual processes for everything from daily attendance to counseling to grades. The company also provides an online platform for virtual learning, and offers support to teachers, parents and students with online lesson plans. PowerSchool offers analytics and assessment products, as well as career counseling and college search.
