BlackLine has been treading water for the past six months, recording a small loss of 3.7% while holding steady at $49.33.

Is there a buying opportunity in BlackLine, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.

We're cautious about BlackLine. Here are three reasons why we avoid BL and a stock we'd rather own.

Why Is BlackLine Not Exciting?

Started in 2001 by software engineer Therese Tucker, one of the very few women founders who took their companies public, BlackLine (NASDAQ:BL) provides software for organizations to automate accounting and finance tasks.

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.

BlackLine’s billings came in at $207.3 million in Q4, and over the last four quarters, its year-on-year growth averaged 6.7%. 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 BlackLine’s revenue to rise by 7.4%, a deceleration versus its 15.3% annualized growth for the past three years. This projection doesn't excite us and implies its products and services will see some demand headwinds.

3. Free Cash Flow Projections Disappoint

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Over the next year, analysts’ consensus estimates show they’re expecting BlackLine’s free cash flow margin of 25.1% for the last 12 months to remain the same.

Final Judgment

BlackLine isn’t a terrible business, but it isn’t one of our picks. That said, the stock currently trades at 5.3× forward price-to-sales (or $49.33 per share). Beauty is in the eye of the beholder, but our analysis shows the upside isn’t great compared to the potential downside. We're fairly confident there are better stocks to buy right now. We’d recommend looking at an all-weather company that owns household favorite Taco Bell.

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