BlackLine trades at $54.73 per share and has stayed right on track with the overall market, gaining 13% over the last six months. At the same time, the S&P 500 has returned 15.7%.

Is there a buying opportunity in BlackLine, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.

Why Is BlackLine Not Exciting?

We don't have much confidence in BlackLine. Here are three reasons you should be careful with BL and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years. Over the last three years, BlackLine grew its sales at a 12.5% compounded annual growth rate. Although this growth is acceptable on an absolute basis, it fell short of our standards for the software sector, which enjoys a number of secular tailwinds.

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.

BlackLine’s billings came in at $182.3 million in Q2, and over the last four quarters, its year-on-year growth averaged 7.2%. This performance was underwhelming and suggests that increasing competition is causing challenges in acquiring/retaining customers.

3. 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 BlackLine’s revenue to rise by 8.2%, a deceleration versus This projection doesn't excite us and implies its products and services will see some demand headwinds.

Final Judgment

BlackLine isn’t a terrible business, but it doesn’t pass our quality test. That said, the stock currently trades at 4.8× forward price-to-sales (or $54.73 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're fairly confident there are better stocks to buy right now. Let us point you toward one of Charlie Munger’s all-time favorite businesses.

Stocks We Would Buy Instead of BlackLine

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