Thinking Outside The Box Stock: Time To Pick Alternatives?

If you are a Box (NYSE:BOX) investor and took advantage of its 12% run-up over the past week following its better-than-expected Q2 earnings, it may be time to look elsewhere. As of this moment, we find Fortinet (NASDAQ:FTNT) – a cyber security company – and Motorola Solutions (NYSE:MSI) – which sells wireless communications and video equipment – as being more attractive buys than Box.

Why? Simply because the valuation and growth numbers tell us so. Motorola Solutions and Fortinet stocks have both seen higher growth in revenue and operating profits than Box in the last twelve months, as well as the most recent quarter. Not only that, they’re both cheaper than Box.

In fact, the strategy of thoughtfully shifting allocation to more attractive stocks is part of our market outperforming Trefis High Quality Portfolio (HQ) – which beat the S&P 500 in 2023 handily despite being meaningfully underweight the magnificent 7. See the full HQ performance story here.

Better Buys Than BOX – MSI & FTNT Stocks?

Specifically, to illustrate the opportunity for Motorola Solutions, you pay $26.98 per dollar of earnings-before-interest-and taxes (EBIT) for MSI stock versus $65.23 for BOX, and get higher annual growth (8.0% vs 3.9%), higher quarterly growth (9.4% vs 3.3%), and better margin trend (3.9% vs 1.7%). Overall, you get higher revenue, and operating profit growth from Motorola Solutions and Fortinet, and pay less than BOX stock. See our complete dashboard analysis of Better Bets Than BOX stock

So What’s The Catch?

Now, could Box buck the trend? Could it grow its revenues and profits much faster than Motorola Solutions or Fortinet in the coming quarters? Of course that’s possible. Box sells cloud-based content management, collaboration, and file-sharing solutions which are used by over a third of the Fortune 500 companies. While the company saw growth cool down after Covid-19, some trends could drive growth going forward. The company is betting big on generative AI with its BoxAI platform which natively integrates advanced AI models into the Box Content Cloud. Box also announced the integration of its document system with Microsoft’s Azure OpenAI service. AI could make Box’s tools a lot more useful, helping customers interact with their documents more intuitively while enabling automation and content generation.  Box recently raised its full-year revenue guidance and there remains a possibility that we could see stronger growth going forward led by gen AI.

The data below shows both Motorola Solutions and Fortinet outperformed Box recently and over the last year. They might repeat this. Related Ideas: Better Buys and Outperformers

Pay Less Per Dollar Of Profit (EBIT) Than Box, To Get More Revenue And Profit Growth?

FTNT has seen the strongest revenue growth of the three in the last twelve months and the last quarter, followed by MSI. BOX has seen the slowest growth over the period. Moreover, MSI and FTNT have seen higher margin expansion compared to BOX. However, despite this, BOX stock trades at a higher price-to-operating income ratio of almost 65x, compared to levels of roughly 27x for MSI and 41x for FTNT.

What About Relative Market Returns?

MSI stock has shown a stronger market performance, with returns of 32.5% over the past 6 months, and 57% over the past 12 months. In comparison, BOX returns for the same periods were weaker at 8% and 21%, respectively.

How Did These Metrics Look 1 Year Ago – Could BOX’s Combination Of Higher Valuation & Lower Growth Persist?

BOX still had a higher valuation of $85.74 vs $21.88 for MSI but lower annual growth (10.33% vs 14.13%), lower quarterly growth (5.6% vs 12.29%), and more favorable margin change (6.3% vs 1.1%).

Investment Thesis for MSI and FTNT

MSI’s core land mobile radio (LMR) product is a cash cow of sorts, given that customers are generally locked in once they buy into the system. Moreover, governments – who are the primary customers – don’t meaningfully scale down public safety-related budgets even during economic downturns. This has helped MSI boost its cash flows and raise its dividend at an average rate of over 10% in the last five years to above $3.90 per share. MSI has also been investing its cash flows from its LMR business into strategic acquisitions in the public security space to drive further growth.

FTNT caters to the fast-growing cybersecurity market, selling firewalls, endpoint security, and intrusion detection systems. As the world becomes more reliant on interconnected computer systems, cyber attacks can disrupt economic activity, sabotage critical infrastructure, and compromise countries’ security. This is making digital security a critical investment priority for governments and businesses. This is driving up demand for Fortinet’s security operations (SecOps) and secure access service edge (SASE) products. The company has expanded sales at an annual rate of over 26% in the last three years.

Here’s more on Trefis’ market-beating portfolios, including HQ with downside protection.

[1] Returns as of 9/4/2024
[2] Cumulative total returns since the end of 2016

Invest with Trefis Market-Beating Portfolios
See all Trefis Price Estimates