Over the last six months, Bentley shares have sunk to $42.20, producing a disappointing 16.9% loss - worse than the S&P 500’s 1.7% drop. This was partly driven by its softer quarterly results and might have investors contemplating their next move.

Is now the time to buy Bentley, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.

Even though the stock has become cheaper, we're cautious about Bentley. Here are three reasons why we avoid BSY and a stock we'd rather own.

Why Is Bentley Not Exciting?

Founded by brothers Keith and Barry Bentley, Bentley Systems (NASDAQ: BSY) offers a software-as-a-service platform that addresses the lifecycle of infrastructure projects such as road networks, tunnel systems, and wastewater facilities.

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.

Bentley’s billings came in at $371.1 million in Q4, and over the last four quarters, its year-on-year growth averaged 7.5%. 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 Bentley’s revenue to rise by 9.3%, a slight deceleration versus its 11.9% annualized growth for the past three years. This projection is underwhelming and indicates its products and services will see some demand headwinds.

3. Cash Flow Margin Set to Decline

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.

Over the next year, analysts predict Bentley’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 31.1% for the last 12 months will decrease to 28.1%.

Final Judgment

Bentley isn’t a terrible business, but it doesn’t pass our bar. After the recent drawdown, the stock trades at 9.5× forward price-to-sales (or $42.20 per share). At this valuation, there’s a lot of good news priced in - you can find better investment opportunities elsewhere. Let us point you toward one of Charlie Munger’s all-time favorite businesses.

Stocks We Would Buy Instead of Bentley

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