The Software-as-a-Service (SaaS) content management platform Box, Inc. (BOX) has been riding the tech wave since the onset of the COVID-19 pandemic. It has gained 14.7% over the past year.
With the demand for remote collaborations hitting record highs in 2020, BOX’s proprietary cloud-based platform, with easy sharing and teamwork features, has gained prominence. This momentum is expected to continue as the world adopts a permanent hybrid remote working model.
The stock has gained 7.9% over the past three months, and 3.2% year-to-date. However, the company’s revenue and earnings performance over this period outweighs its price gains, making it a relatively undervalued stock.
Here’s what I think could shape BOX’s performance in the near term:
Favorable Macroeconomic Scenario and Recent Developments
The remote working culture adopted globally as a consequence of the coronavirus pandemic has resulted in an overall increase in productivity, incentivizing companies to adapt to a permanent hybrid working model. Along with the lower cost of maintaining a remote workforce, companies can also hire trained workers from distant locations absent the worry, hassle and costs of relocation. While most companies plan to operate remotely at least until September, many are now developing hybrid operational models for the long term.
Early this month, BOX acquired cloud-based electronic signature innovator SignRequest. The move should allow BOX to authenticate and verify Box business and enterprise plans, increasing security and governance for various content. The company also launched Box shuttle on February 10. This allows users to transfer high volumes of data and content at relatively lower costs. These developments should allow BOX to consolidate its market share in a highly competitive industry.
Discounted Valuation
In terms of non-GAAP forward PEG, BOX is currently trading at 1.89x, 8.8% lower than the industry average 2.08x. BOX’s forward price/sales ratio of 3.85 is 11.1% lower than the industry average 4.32.
The company’s forward price/cash flow of 8.67x compares favorably with the industry average 22.87x.
Impressive Historical and Projected Growth
BOX’s revenues have increased at a CAGR of 16.4% over the past three years, while its levered free cash flow has increased at a CAGR of 33.3% over this period. The company’s tangible book value and total assets increased at CAGRs of 62.7% and 26.4%, respectively, over the same period.
BOX’s EPS is expected to rise 142.9% in the about-to-be reported quarter (ended January 2021), 2100% in fiscal 2021, and 15.2% next year. Moreover, analysts expect the stock’s EPS to rise at 8% per annum over the next five years. A consensus revenue estimate represents a 7.1% rise in the quarter ended January 2021, 10.4% in the current year, and 9.3% in 2022.
Consensus Ratings and Price Target Indicate Potential Upside
BOX is currently trading 15.5% below its 52-week high of $22.09, which it hit on June 22, 2020. Analysts expect the stock to break out of this resistance level to hit $23.33 in the near term, indicating a potential upside of 25%.
BOX has an average broker rating of 1.62, which indicates favorable analyst sentiment. Of 11 Wall Street analysts that rated the stock, two rated it Strong Buy and six rated it Buy.
POWR Ratings Reflect Promise
BOX has an overall rating of A, which equates to Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with the weighting of each optimized to improve overall performance.
It has an A grade for Value and B for Growth, Momentum, and Quality. This is justified given the stock’s relative undervaluation and surging profitability. BOX’s trailing 12-month gross margin of 70.5% is 46.3% higher than the industry average of 48.19%. Moreover, the stock is currently trading above its 50-day and 200-day moving averages of $18.14 and $17.19, respectively, indicating a golden-cross bullishness pattern.
BOX is currently ranked #3 of 81 stocks in the Technology – Services industry. Click here to view additional BOX ratings for Stability and Sentiment.
There are 23 other stocks in the Technology-Services industry with an overall rating of A or B. Click here to see them.
Bottom Line
BOX has successfully capitalized on the rising popularity of the remote working culture over the past year, and it is currently taking steps to consolidate its growth over the past year. The company raised $315 million through senior notes offering in January to fund its operational expenses and business expansion strategies. Given its healthy growth potential, we think BOX is an ideal value pick at the current price level.
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BOX shares were trading at $18.91 per share on Friday morning, up $0.25 (+1.34%). Year-to-date, BOX has gained 4.76%, versus a 4.88% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.
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