The past six months have been a windfall for F5’s shareholders. The company’s stock price has jumped 50.5%, hitting $257.62 per share. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.

We’re happy investors have made money, but we're swiping left on F5 for now. Here are three reasons why there are better opportunities than FFIV and a stock we'd rather own.

Why Is F5 Not Exciting?

Initially started as a hardware appliances company in the late 1990s, F5 (NASDAQ: FFIV) makes software that helps large enterprises ensure their web applications are always available by distributing network traffic and protecting them from cyberattacks.

1. Long-Term Revenue Growth Disappoints

A company’s long-term performance is an indicator of its overall quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for years. Regrettably, F5’s sales grew at a weak 2.6% compounded annual growth rate over the last three years. This fell short of our benchmarks.

2. Declining Billings Reflect Product and Sales Weakness

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.

F5’s billings came in at $772 million in Q3, and it averaged 1.8% year-on-year declines over the last four quarters. This performance was underwhelming and shows the company faced challenges in acquiring and retaining customers. It also suggests there may be increasing competition or market saturation.

3. Long Payback Periods Delay Returns

The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.

F5’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 highly competitive environment where there is little differentiation between F5’s products and its peers.

Final Judgment

F5 isn’t a terrible business, but it doesn’t pass our quality test. Following the recent surge, the stock trades at 5.2× forward price-to-sales (or $257.62 per share). Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're fairly confident there are better stocks to buy right now. We’d recommend looking at Meta, a top digital advertising platform riding the creator economy.

Stocks We Like More Than F5

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