What a brutal six months it’s been for Tenable. The stock has dropped 32% and now trades at $23.29, rattling many shareholders. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.
Is there a buying opportunity in Tenable, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free for active Edge members.
Why Is Tenable Not Exciting?
Even though the stock has become cheaper, we don't have much confidence in Tenable. Here are three reasons why TENB doesn't excite us 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.
Tenable’s billings came in at $265.1 million in Q3, and over the last four quarters, its year-on-year growth averaged 10.4%. 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 Tenable’s revenue to rise by 7.1%, a deceleration versus its 18.4% annualized growth for the past five years. This projection is underwhelming and suggests its products and services will face some demand challenges.
3. Operating Margin Rising, Profits Up
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.
Tenable’s operating margin rose by 3.4 percentage points over the last two years, as its sales growth gave it operating leverage. Its operating margin for the trailing 12 months was breakeven.
Final Judgment
Tenable isn’t a terrible business, but it doesn’t pass our quality test. After the recent drawdown, the stock trades at 2.7× forward price-to-sales (or $23.29 per share). While this valuation is reasonable, 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 recommend looking at the most dominant software business in the world.
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