Shares of Manhattan Associates (MANH -3.90%) dove roughly 25% this week as of 4 p.m. ET Thursday, according to data provided by S&P Global Market Intelligence.
Manhattan is a leading software solutions provider for supply chain, inventory, and omnichannel operations, working alongside its retail, manufacturing, or logistics customers. While the company has been an incredible 120-bagger since 2000, its fourth-quarter earnings report announced earlier this week left much to be desired.
Manhattan Associates was priced for perfection
Heading into Q4 earnings, Manhattan was trading at 63 times free cash flow (FCF) and had grown its sales by an average of 16% over the last three years. Simply put, it was priced to deliver perfect results once again.
While the company technically did so, beating analysts’ expectations with 7% revenue growth and 14% adjusted earnings per share (EPS) growth, its guidance for 2025 left the market deeply disappointed. Projecting revenue growth of only 2.5% and an adjusted EPS decline of 5%, the company was quickly given a less lofty valuation from the market.
However, though short-term cyclicality weighed on Manhattan’s services revenue, the company’s longer-term prospects remain bright. For example, Manhattan remains the leader in its niche, earning top marks from Forrester with its order management and point-of-sale systems.
This makes the company the first software provider to be a leader in both areas simultaneously, giving it a considerable advantage as stores continue shifting toward an omnichannel presence. Furthermore, its remaining performance obligations (RPO) grew by 25% from the end of 2023, signaling that the upcoming growth deceleration in 2025 shouldn’t last far beyond that.
Combining its valuation at 47 times FCF and its incredible return on invested capital (ROIC) of 82% (a potentially market-beating indicator), Manhattan looks like a wonderful business trading at a more reasonable price.
