Over the last six months, Sprinklr’s shares have sunk to $7.55, producing a disappointing 10.2% loss - a stark contrast to the S&P 500’s 17.2% gain. This might have investors contemplating their next move.
Is there a buying opportunity in Sprinklr, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free for active Edge members.
Why Do We Think Sprinklr Will Underperform?
Despite the more favorable entry price, we're cautious about Sprinklr. Here are three reasons you should be careful with CXM 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.
Sprinklr’s billings came in at $200.6 million in Q2, and over the last four quarters, its year-on-year growth averaged 3.1%. 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 Sprinklr’s revenue to rise by 4.3%, a deceleration versus its 18.1% annualized growth for the past five years. This projection is underwhelming and indicates its products and services will face some demand challenges.
3. Operating Margin in Limbo
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 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.
Analyzing the trend in its profitability, Sprinklr’s operating margin might fluctuated slightly but has generally stayed the same 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. Its operating margin for the trailing 12 months was 4%.
Final Judgment
We see the value of companies addressing major business pain points, but in the case of Sprinklr, we’re out. After the recent drawdown, the stock trades at 2.3× forward price-to-sales (or $7.55 per share). This valuation multiple is fair, but we don’t have much confidence in the company. There are superior stocks to buy right now. We’d suggest looking at an all-weather company that owns household favorite Taco Bell.
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