Pegasystems has been treading water for the past six months, recording a small loss of 2.7% while holding steady at $50.98. The stock also fell short of the S&P 500’s 5.3% gain during that period.

Is now the time to buy Pegasystems, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Is Pegasystems Not Exciting?

We're cautious about Pegasystems. Here are three reasons why there are better opportunities than PEGA and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

A company’s long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Over the last three years, Pegasystems grew its sales at a 11.1% annual rate. Although this growth is acceptable on an absolute basis, it fell short of our standards for the software sector, which enjoys a number of secular tailwinds.

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 Pegasystems’s revenue to rise by 3.6%, a deceleration versus This projection is underwhelming and implies its products and services will face some demand challenges.

3. Long Payback Periods Delay Returns

The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.

Pegasystems’s recent customer acquisition efforts haven’t yielded returns as its CAC payback period was negative this quarter, meaning its incremental sales and marketing investments outpaced its revenue. The company’s inefficiency indicates it operates in a competitive market and must continue investing to grow.

Final Judgment

Pegasystems isn’t a terrible business, but it isn’t one of our picks. With its shares trailing the market in recent months, the stock trades at 5.6× forward price-to-sales (or $50.98 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now. We’d suggest looking at a dominant Aerospace business that has perfected its M&A strategy.

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