Over the past six months, Sprinklr’s stock price fell to $5.74. Shareholders have lost 19.5% of their capital, which is disappointing considering the S&P 500 has climbed by 9.4%. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.
Is there a buying opportunity in Sprinklr, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Do We Think Sprinklr Will Underperform?
Even though the stock has become cheaper, we’re sitting this one out for now. Here are three reasons we avoid CXM, plus one 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.
Sprinklr’s billings came in at $212.5 million in Q1, and over the last four quarters, its year-on-year growth averaged 5.3%. This performance was underwhelming and suggests that increasing competition is causing challenges in acquiring/retaining customers. 
2. Projected Revenue Growth Shows Limited Upside
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 Sprinklr’s revenue to stall, a deceleration versus its 16.6% annualized growth for the past five years. This projection is underwhelming and suggests its products and services will see some demand headwinds.
3. Operating Margin Rising, Profits Up
Many software businesses adjust their profits for stock-based compensation (SBC), but we prioritize GAAP operating margin because SBC is a real expense used to attract and retain engineering and sales talent. This is one of the best measures of profitability because it shows how much money a company takes home after developing, marketing, and selling its products.
Analyzing the trend in its profitability, Sprinklr’s operating margin rose by 4 percentage points over the last two years, as its sales growth gave it operating leverage. Its operating margin for the trailing 12 months was 6%.
Final Judgment
We see the value of companies addressing major business pain points, but in the case of Sprinklr, we’re out. After the recent drawdown, the stock trades at 1.5× forward price-to-sales (or $5.74 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. There are better stocks to buy right now. We’d recommend looking at the most dominant software business in the world.
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