Upland Software’s stock price has taken a beating over the past six months, shedding 43.4% of its value and falling to $2.53 per share. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Upland Software, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Upland Software Not Exciting?
Despite the more favorable entry price, we're swiping left on Upland Software for now. Here are three reasons why you should be careful with UPLD and a stock we'd rather own.
1. Revenue Spiraling Downwards
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last three years, Upland Software’s demand was weak and its revenue declined by 6.8% per year. This was below our standards and signals it’s a lower quality business.
2. Revenue Projections Show Stormy Skies Ahead
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 Upland Software’s revenue to drop by 19.2%, a decrease from This projection doesn't excite us and implies its products and services will face some demand challenges.
3. Operating Losses Sound the Alarms
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 metric shows how much revenue remains after accounting for all core expenses – everything from the cost of goods sold to sales and R&D.
Upland Software’s expensive cost structure has contributed to an average operating margin of negative 5.3% over the last year. Unprofitable software companies require extra attention because they spend heaps of money to capture market share. As seen in its historically underwhelming revenue performance, this strategy hasn’t worked so far, and it’s unclear what would happen if Upland Software reeled back its investments. Wall Street seems to think it will face some obstacles, and we tend to agree.
Final Judgment
Upland Software isn’t a terrible business, but it isn’t one of our picks. Following the recent decline, the stock trades at 0.4× forward price-to-sales (or $2.53 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're fairly confident there are better stocks to buy right now. Let us point you toward our favorite semiconductor picks and shovels play.
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