Manhattan Associates (MANH): Buy, Sell, or Hold Post Q2 Earnings?

Over the past six months, Manhattan Associates has been a great trade, beating the S&P 500 by 7.1%. Its stock price has climbed to $216.10, representing a healthy 23% increase. This was partly due to its solid quarterly results, and the run-up 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? See what our analysts have to say in our full research report, it’s free.

Why Is Manhattan Associates Not Exciting?

We’re happy investors have made money, but we're sitting this one out for now. Here are three reasons 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 $270.2 million in Q2, and over the last four quarters, its year-on-year growth averaged 5.7%. 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 4.1%, a deceleration versus This projection doesn't excite us and indicates its products and services will face some demand challenges.

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 56.3% gross margin over the last year. That means Manhattan Associates paid its providers a lot of money ($43.72 for every $100 in revenue) to run its business.

Final Judgment

Manhattan Associates’s business quality ultimately falls short of our standards. With its shares outperforming the market lately, the stock trades at 12× forward price-to-sales (or $216.10 per share). This valuation tells us a lot of optimism is priced in - we think other companies feature superior fundamentals at the moment. Let us point you toward one of our all-time favorite software stocks.

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