Even though Bentley Systems (currently trading at $51.31 per share) has gained 16.9% over the last six months, it has lagged the S&P 500’s 22.9% return during that period. This might have investors contemplating their next move.
Is there a buying opportunity in Bentley Systems, 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 Is Bentley Systems Not Exciting?
We're swiping left on Bentley Systems for now. Here are three reasons there are better opportunities than BSY 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.
Bentley Systems’s billings came in at $368.3 million in Q2, and over the last four quarters, its year-on-year growth averaged 11.3%. 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 Systems’s revenue to rise by 9.9%, close to its 13.1% annualized growth for the past five years. This projection doesn't excite us and implies its newer products and services will not catalyze better top-line performance yet.
3. Operating Margin Rising, Profits Up
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 metric shows how much revenue remains after accounting for all core expenses – everything from the cost of goods sold to sales and R&D.
Analyzing the trend in its profitability, Bentley Systems’s operating margin rose by 1.2 percentage points over the last two years, as its sales growth gave it operating leverage. Its operating margin for the trailing 12 months was 23.2%.
Final Judgment
Bentley Systems isn’t a terrible business, but it doesn’t pass our bar. With its shares underperforming the market lately, the stock trades at 10.9× forward price-to-sales (or $51.31 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 pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at a dominant Aerospace business that has perfected its M&A strategy.
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