What a time it’s been for Commvault. In the past six months alone, the company’s stock price has increased by a massive 61.8%, reaching $141.82 per share. This run-up might have investors contemplating their next move.
Is now the time to buy Commvault, 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 Commvault Not Exciting?
We’re glad investors have benefited from the price increase, but we’re sitting this one out for now. Here are three reasons we avoid CVLT, plus one 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.
Commvault’s billings came in at $300.3 million in Q2, and over the last four quarters, its year-on-year growth averaged 12.2%. This performance was underwhelming and suggests that increasing competition is causing challenges in acquiring/retaining customers. 
2. 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.
Commvault’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.
3. Shrinking Operating Margin
Many software businesses adjust their profits for stock-based compensation (SBC), but we prioritize GAAP operating margin because SBC is a real expense used to attract and retain engineering and sales talent. This is one of the best measures of profitability because it shows how much money a company takes home after developing, marketing, and selling its products.
Analyzing the trend in its profitability, Commvault’s operating margin decreased by 1.5 percentage points over the last two years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its operating margin for the trailing 12 months was 6.1%.
Final Judgment
Commvault isn’t a terrible business, but it doesn’t pass our quality test. After the recent surge, the stock trades at 4.4× forward price-to-sales (or $141.82 per share). This valuation multiple is fair, but we don’t have much faith in the company. We’re fairly confident there are better investments elsewhere. Let us point you toward our favorite semiconductor picks and shovels play.
Stocks We Like More Than Commvault
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