Shareholders of BigCommerce would probably like to forget the past six months even happened. The stock dropped 26.7% and now trades at $4.99. This might have investors contemplating their next move.
Is there a buying opportunity in BigCommerce, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think BigCommerce Will Underperform?
Despite the more favorable entry price, we're swiping left on BigCommerce for now. Here are three reasons why BIGC doesn't excite us and a 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.
BigCommerce’s billings came in at $91.51 million in Q2, and over the last four quarters, its year-on-year growth averaged 3.9%. This performance was underwhelming and suggests that increasing competition is causing challenges in acquiring/retaining customers. 
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 BigCommerce’s revenue to rise by 4.1%, a deceleration versus This projection doesn't excite us and suggests its products and services will face some demand challenges.
3. Operating Losses Sound the Alarms
While many software businesses point investors to their adjusted profits, which exclude stock-based compensation (SBC), we prefer GAAP operating margin because SBC is a legitimate expense used to attract and retain talent. This metric shows how much revenue remains after accounting for all core expenses – everything from the cost of goods sold to sales and R&D.
BigCommerce’s expensive cost structure has contributed to an average operating margin of negative 8.6% over the last year. Unprofitable software companies require extra attention because they spend heaps of money to capture market share. As seen in its historically underwhelming revenue performance, this strategy hasn’t worked so far, and it’s unclear what would happen if BigCommerce reeled back its investments. Wall Street seems to think it will face some obstacles, and we tend to agree.
Final Judgment
We cheer for all companies solving complex business issues, but in the case of BigCommerce, we’ll be cheering from the sidelines. Following the recent decline, the stock trades at 1.1× forward price-to-sales (or $4.99 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are superior stocks to buy right now. We’d recommend looking at a safe-and-steady industrials business benefiting from an upgrade cycle.
Stocks We Would Buy Instead of BigCommerce
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