3 Reasons to Sell TDC and 1 Stock to Buy Instead

What a brutal six months it’s been for Teradata. The stock has dropped 22.4% and now trades at $22.90, rattling many shareholders. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.

Is there a buying opportunity in Teradata, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Do We Think Teradata Will Underperform?

Despite the more favorable entry price, we're swiping left on Teradata for now. Here are three reasons why there are better opportunities than TDC and a stock we'd rather own.

1. Declining Billings Reflect Product and Sales Weakness

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.

Teradata’s billings came in at $457 million in Q1, and it averaged 3.4% year-on-year declines over the last four quarters. This performance was underwhelming and shows the company faced challenges in acquiring and retaining customers. It also suggests there may be increasing competition or market saturation.

2. Revenue Projections Show Stormy Skies Ahead

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 Teradata’s revenue to drop by 3.2%, close to its 4% annualized declines for the past three years. This projection doesn't excite us and implies its newer products and services will not lead to better top-line performance yet.

3. Low Gross Margin Reveals Weak Structural Profitability

For software companies like Teradata, 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.

Teradata’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 60.2% gross margin over the last year. Said differently, Teradata had to pay a chunky $39.75 to its service providers for every $100 in revenue.

Final Judgment

We cheer for all companies solving complex business issues, but in the case of Teradata, we’ll be cheering from the sidelines. Following the recent decline, the stock trades at 1.4× forward price-to-sales (or $22.90 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. There are superior stocks to buy right now. We’d recommend looking at the most dominant software business in the world.

Stocks We Like More Than Teradata

Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.

While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 176% over the last five years.

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.