PTC (PTC): Buy, Sell, or Hold Post Q1 Earnings?

Over the past six months, PTC’s stock price fell to $170.76. Shareholders have lost 9.4% of their capital, disappointing when considering the S&P 500 was flat. This might have investors contemplating their next move.

Is now the time to buy PTC, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Is PTC Not Exciting?

Even with the cheaper entry price, we don't have much confidence in PTC. Here are three reasons why you should be careful with PTC and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last three years, PTC grew its sales at a weak 7.7% compounded annual growth rate. This was below our standard for the software sector.

2. 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.

PTC’s billings came in at $698.7 million in Q1, and over the last four quarters, its year-on-year growth averaged 4.8%. This performance was underwhelming and suggests that increasing competition is causing challenges in acquiring/retaining customers.

3. Long Payback Periods Delay Returns

The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.

PTC’s recent customer acquisition efforts haven’t yielded returns as its CAC payback period was negative this quarter, meaning its incremental sales and marketing investments outpaced its revenue. The company’s inefficiency indicates it operates in a competitive market and must continue investing to grow.

Final Judgment

PTC’s business quality ultimately falls short of our standards. Following the recent decline, the stock trades at 8× forward price-to-sales (or $170.76 per share). Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're fairly confident there are better stocks to buy right now. We’d recommend looking at a top digital advertising platform riding the creator economy.

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