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 there a buying opportunity in Manhattan Associates, 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 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 Chipotle, which surprisingly still has a long runway for growth.
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