Over the last six months, Box’s shares have sunk to $26.48, producing a disappointing 15.3% loss - a stark contrast to the S&P 500’s 10.7% gain. This might have investors contemplating their next move.
Is there a buying opportunity in Box, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Do We Think Box Will Underperform?
Despite the more favorable entry price, we don’t have much confidence in Box. Here are three reasons you should be careful with BOX, plus one stock we’d rather own.
1. Weak Billings Point to Soft Demand
Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.
Box’s billings came in at $255.4 million in Q1, and over the last four quarters, its year-on-year growth averaged 6.5%. This performance was underwhelming and suggests that increasing competition is causing challenges in acquiring/retaining customers. 
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Box’s revenue to rise by 8.3%, close to its 8.9% annualized growth for the past five years. This projection doesn’t excite us and suggests its newer products and services will not accelerate its top-line performance yet.
3. Operating Margin Rising, Profits Up
While many software businesses point investors to their adjusted profits, which exclude stock-based compensation (SBC), we prefer GAAP operating margin because SBC is a legitimate expense used to attract and retain talent. This metric shows how much revenue remains after accounting for all core expenses — everything from the cost of goods sold to sales and R&D.
Analyzing the trend in its profitability, Box’s operating margin rose by 2.5 percentage points over the last two years, as its sales growth gave it operating leverage. Its operating margin for the trailing 12 months was 8.6%.
Final Judgment
We cheer for all companies solving complex business issues, but in the case of Box, we’ll be cheering from the sidelines. After the recent drawdown, the stock trades at 2.9× forward price-to-sales (or $26.48 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. There are better investments elsewhere. Let us point you toward a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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