Procore Technologies trades at $71.77 per share and has stayed right on track with the overall market, gaining 18.6% over the last six months. At the same time, the S&P 500 has returned 22.9%.

Is there a buying opportunity in Procore Technologies, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free for active Edge members.

Why Is Procore Technologies Not Exciting?

We're sitting this one out for now. Here are three reasons you should be careful with PCOR and a 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.

Procore Technologies’s billings came in at $323.5 million in Q2, and over the last four quarters, its year-on-year growth averaged 13.7%. This performance slightly lagged the sector and suggests that increasing competition is causing challenges in acquiring/retaining customers.

2. Shrinking Operating Margin

While many software businesses point investors to their adjusted profits, which exclude stock-based compensation (SBC), we prefer GAAP operating margin because SBC is a legitimate expense used to attract and retain 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.

Looking at the trend in its profitability, Procore Technologies’s operating margin decreased by 2.3 percentage points over the last two years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Procore Technologies’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers. Its operating margin for the trailing 12 months was negative 13.7%.

3. Mediocre Free Cash Flow Margin Limits Reinvestment Potential

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.

Procore Technologies has shown weak cash profitability over the last year, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 6.5%, subpar for a software business.

Final Judgment

Procore Technologies isn’t a terrible business, but it doesn’t pass our quality test. That said, the stock currently trades at 7.8× forward price-to-sales (or $71.77 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere. We’d recommend looking at the Amazon and PayPal of Latin America.

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