As the third quarter earnings season comes to a close, investors are left wondering whether Box’s impressive 20% return over the past six months is sustainable. With its stock price climbing to $31.30 per share, many are contemplating their next move.
Is now the time to buy Box, or should you be cautious about including it in your portfolio? Let’s dive into our analysts’ thoughts on whether Box’s recent performance justifies a buy, sell, or hold strategy.
See What Our Analysts Have to Say
Our research report provides an in-depth analysis of Box’s performance and potential. As a valued reader, you can access this comprehensive report for free. Don’t miss out on the insights that will help inform your investment decisions.
Why We’re Cautious About Box
While we’re glad to see investors making money from Box’s recent run-up, our analysts remain cautious about its long-term prospects. Here are two reasons why:
1. Long-Term Revenue Growth Disappoints
A company’s ability to sustain long-term revenue growth is a key indicator of its overall quality. Any business can post strong quarterly results or even achieve a few years of impressive growth, but the true test lies in its ability to consistently deliver year-over-year expansion.
Regrettably, Box’s sales have grown at a sluggish 8.5% compounded annual growth rate over the last three years. This underwhelming performance falls short of our benchmark for the software sector.
Box Quarterly Revenue
| Quarter | Revenue Growth |
| — | — |
| Q1 2022 | 9.3% |
| Q2 2022 | 8.1% |
| Q3 2022 | 7.5% |
As you can see, Box’s revenue growth has been steadily declining over the past few quarters.
Long-Term Revenue Growth Performance
| Company | 3-Year CAGR |
| — | — |
| Box (BOX) | 8.5% |
| Average Software Sector Benchmark | 12.1% |
2. Weak Billings Point to Soft Demand
Billings, a non-GAAP metric often referred to as ‘cash revenue’, provides insight into how much money a company has collected from customers in a specific period. This is distinct from revenue, which must be recognized over the length of a contract.
Box’s billings came in at $264.7 million in Q3, with its year-on-year growth averaging just 5% over the last four quarters. This underwhelming performance suggests that increasing competition is causing challenges for Box in acquiring and retaining customers.
Box Billings
| Quarter | Billings Growth |
| — | — |
| Q1 2022 | 6.2% |
| Q2 2022 | 5.8% |
| Q3 2022 | 4.9% |
Final Judgment
While Box isn’t a terrible business, it’s not one of our top picks. With its shares beating the market recently, the stock trades at 4.1× forward price-to-sales (or $31.30 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk.
We’re fairly confident that there are better investments elsewhere. If you’re looking for a solid addition to your portfolio, consider Costco, one of Charlie Munger’s all-time favorite businesses.
Stocks We Like More Than Box
The elections are now behind us, and with rates dropping and inflation cooling, many analysts expect a breakout market to cap off the year. Our team is zeroing in on the stocks that could benefit immensely from this trend.
Take advantage of the rebound by checking out our Top 5 Growth Stocks for this month. This curated list features high-quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks like Nvidia, which has seen a whopping +2,691% growth between September 2019 and September 2024, are great examples of the types of businesses that can generate outstanding returns. Other under-the-radar companies like Comfort Systems (+783% five-year return) also made our list in 2019.
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