Tenable has had an impressive run over the past six months as its shares have beaten the S&P 500 by 9%. The stock now trades at $27.77, marking a 15.2% gain. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

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

Why Is Tenable Not Exciting?

Despite the momentum, we’re cautious about Tenable. Here are three reasons why TENB doesn’t excite us, 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.

Tenable’s billings came in at $229 million in Q1, and over the last four quarters, its year-on-year growth averaged 6.9%. 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 Tenable’s revenue to rise by 6.8%, a deceleration versus its 17.3% annualized growth for the past five years. This projection doesn’t excite us 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 metric shows how much revenue remains after accounting for all core expenses — everything from the cost of goods sold to sales and R&D.

Looking at the trend in its profitability, Tenable’s operating margin rose by 3.4 percentage points over the last two years, as its sales growth gave it operating leverage. Its operating margin for the trailing 12 months was 1.7%.

Final Judgment

Tenable isn’t a terrible business, but it isn’t one of our picks. With its shares topping the market in recent months, the stock trades at 3× forward price-to-sales (or $27.77 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We’re pretty confident there are more exciting stocks to buy at the moment. We’d recommend looking at one of our top software and edge computing picks.

Stocks We Would Buy Instead of Tenable

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