Is Box stock a good buy ahead of its earnings?

Box stock price has crashed in the past few months, erasing the gains it made after the last financial results. After soaring to a record high of $38.7 in March after its first quarter results, BOX share price plunged by 17.8% to the current $31.80. 

Box earnings ahead

Box is a technology company in the cloud computing industry, offering file storage and sharing solutions to enterprises and individuals. It operates in a highly competitive industry where top companies like Amazon, Microsoft, and Google have similar solutions. 

Box stock price went parabolic and reached its all-time high after publishing its Q1 financial results. The data showed that its revenue rose by 4% to $276 million, while the remaining performance obligations surged by 21% to $1.4 billion. 

Box booked a gross profit of $215 million and an operating profit of $6.3 million, a big drop from th $18 million it made in the same quarter last year. 

While it no longer generates double-digit revenue growth, the Box stock price jumped because the numbers were better than estimates. Most importantly, the company provided a better-than-expected forward guidance. It now expects its second-quarter revenue to be between $290 million and $291 million. 

It also expects full-year revenue to be between $1.16 billion and $1.17 billion. Most importantly, Box’s net income per share will be between $1.22 and $1.26. 

Data compiled by Yahoo Finance shows that the average revenue estimate is $290 million, up by 7.46% from last year, while its forward guidance for its annual revenue will be $1.17 billion.

Read more: Box stock price forecast ahead of earnings: buy or sell?

Is Box a good investment?

Box has not been a solid investment since going public. While its stock is up by 75% in the last five years, the Nasdaq 100 Index has jumped by 120% in the last five years.

It has also underperformed other top cloud computing companies as competition has increased over the years.

Box lacks the competitive advantage that other large companies have. For example, a company using Google Cloud solutions will likely prefer to use it Drive service to simplify its payments and get access to other services.

Most notably, Box stock seems overvalued based on the rule of 40 metric. Its forward revenue growth is about 9%, while its net income margin and free cash flow margin are 21% and  30%, giving it a rule of 40 multiple of 29% and 39%.

Most importantly, the company lacks a clear catalyst that will propel its stock higher. One of the most touted catalysts, its potential acquisition, has never materialized.

Box stock price analysis 

The daily timeframe chart shows that the Box stock price peaked at $38.78 in June after the last financial results. 

These gains were short-lived as the stock plunged by 18% to the current $31.80, meaning that it is in a bear market. It remains below the 50-day and 100-day Exponential Moving Averages (EMA).

On the positive side, the stock has formed a morning star candlestick pattern, which is made up of a small body and upper and lower shadows. It is a common bullish reversal sign.

Therefore, which the long-term Box stock price outlook is muted, there is a possibility that it will jump after publishing its financial results this week. If this happens, the next key resistance level to watch will be at $35.

However, a drop below the lower side of the morning star candlestick will point to more downside as it will prove that there are still more bears left in the market.

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