Manhattan Associates’s stock price has taken a beating over the past six months, shedding 30.8% of its value and falling to $193.39 per share. This might have investors contemplating their next move.
Is now the time to buy Manhattan Associates, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Do We Think Manhattan Associates Will Underperform?
Despite the more favorable entry price, we don't have much confidence in Manhattan Associates. Here are three reasons why you should be careful with MANH and a 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.
Manhattan Associates’s billings came in at $279.9 million in Q1, and over the last four quarters, its year-on-year growth averaged 3.6%. 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 Manhattan Associates’s revenue to rise by 1.9%, a deceleration versus This projection doesn't excite us and suggests its products and services will see some demand headwinds.
3. Low Gross Margin Reveals Weak Structural Profitability
For software companies like Manhattan Associates, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.
Manhattan Associates’s gross margin is substantially worse than most software businesses, signaling it has relatively high infrastructure costs compared to asset-lite businesses like ServiceNow. As you can see below, it averaged a 55.6% gross margin over the last year. That means Manhattan Associates paid its providers a lot of money ($44.38 for every $100 in revenue) to run its business. 
Final Judgment
We cheer for all companies solving complex business issues, but in the case of Manhattan Associates, we’ll be cheering from the sidelines. After the recent drawdown, the stock trades at 11× forward price-to-sales (or $193.39 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better stocks to buy right now. Let us point you toward the most dominant software business in the world.
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