Manhattan Associates’s stock price has taken a beating over the past six months, shedding 39.3% of its value and falling to $164.02 per share. This was partly driven by its softer quarterly results and 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? Dive into our full research report to see our analyst team’s opinion, it’s free .
Even with the cheaper entry price, we're swiping left on Manhattan Associates for now. Here are three reasons why MANH doesn't excite us and a stock we'd rather own.
Why Is Manhattan Associates Not Exciting?
Boasting major consumer staples and pharmaceutical companies as clients, Manhattan Associates (NASDAQ:MANH) offers a software-as-service platform that helps customers manage their supply chains.
1. Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last three years, Manhattan Associates grew its sales at a 16.2% compounded annual growth rate. Although this growth is acceptable on an absolute basis, it fell slightly short of our standards for the software sector, which enjoys a number of secular tailwinds.
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 2.2%, a deceleration versus its 16.2% annualized growth for the past three years. This projection is underwhelming and suggests 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 54.8% gross margin over the last year. Said differently, Manhattan Associates had to pay a chunky $45.18 to its service providers for every $100 in revenue.
Final Judgment
Manhattan Associates isn’t a terrible business, but it doesn’t pass our bar. Following the recent decline, the stock trades at 9.5× forward price-to-sales (or $164.02 per share). This multiple tells us a lot of good news is priced in - you can find better investment opportunities elsewhere. We’d suggest looking at one of our all-time favorite software stocks .
Stocks We Would Buy Instead of Manhattan Associates
The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market - and we’re zeroing in on the stocks that could benefit immensely.
Take advantage of the rebound by checking out 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 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free .
