Since October 2024, Qualys has been in a holding pattern, posting a small return of 2.8% while floating around $125.31. However, the stock is beating the S&P 500’s 5.3% decline during that period.

Is there a buying opportunity in Qualys, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.

Despite the relative momentum, we're cautious about Qualys. Here are three reasons why we avoid QLYS and a stock we'd rather own.

Why Is Qualys Not Exciting?

Founded in 1999 as one of the first subscription security companies, Qualys (NASDAQ: QLYS) provides organizations with software to assess their exposure to cyber-attacks.

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.

Qualys’s billings came in at $194 million in Q4, and over the last four quarters, its year-on-year growth averaged 6.1%. 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 Qualys’s revenue to rise by 7%, a deceleration versus its 13.9% annualized growth for the past three years. This projection doesn't excite us and indicates its products and services will face some demand challenges.

3. Cash Flow Margin Set to Decline

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Over the next year, analysts predict Qualys’s cash conversion will slightly fall. Their consensus estimates imply its free cash flow margin of 38.1% for the last 12 months will decrease to 36%.

Final Judgment

Qualys isn’t a terrible business, but it doesn’t pass our quality test. Following its recent outperformance in a weaker market environment, the stock trades at 7.2× forward price-to-sales (or $125.31 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 a top digital advertising platform riding the creator economy.

Stocks We Like More Than Qualys

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