Manhattan Associates trades at $282.99 and has moved in lockstep with the market. Its shares have returned 12.7% over the last six months while the S&P 500 has gained 9.7%.

Is now the time to buy Manhattan Associates, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.

We're cautious about Manhattan Associates. 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

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last three years, Manhattan Associates grew its sales at a 17% compounded annual growth rate. Although this growth is solid on an absolute basis, it fell slightly short of our benchmark for the software sector.

2. 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 54.7% gross margin over the last year. That means Manhattan Associates paid its providers a lot of money ($45.35 for every $100 in revenue) to run its business.

3. 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.

Manhattan Associates’s recent customer acquisition efforts haven’t yielded returns as its CAC payback period was negative this quarter, meaning its sales and marketing investments outpaced its revenue. The company’s inefficiency indicates it operates in a competitive market and must continue investing to grow.

Final Judgment

Manhattan Associates isn’t a terrible business, but it doesn’t pass our bar. That said, the stock currently trades at 15.4× forward price-to-sales (or $282.99 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better stocks to buy right now. We’d suggest looking at CrowdStrike, the most entrenched endpoint security platform.

Stocks We Like More Than Manhattan Associates

The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market to cap off the year - and we’re zeroing in on the stocks that could benefit immensely.

Take advantage of the rebound by checking out our Top 6 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 (+2,691% between September 2019 and September 2024) as well as under-the-radar businesses like United Rentals (+550% five-year return). Find your next big winner with StockStory today for free.