Wix’s stock price has taken a beating over the past six months, shedding 40.9% of its value and falling to $77.67 per share. This was partly due to its softer quarterly results and might have investors contemplating their next move.

Is now the time to buy Wix, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Even though the stock has become cheaper, we're sitting this one out for now. Here are three reasons why WIX doesn't excite us and a stock we'd rather own.

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.

Wix’s billings came in at $514.5 million in Q3, and over the last four quarters, its year-on-year growth averaged 13.7%. This performance slightly lagged the sector and suggests that increasing competition is causing challenges in acquiring/retaining customers.

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.

Looking at the trend in its profitability, Wix’s operating margin rose by 1.9 percentage points over the last two years, as its sales growth gave it operating leverage. Its operating margin for the trailing 12 months was 5.7%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Over the next year, analysts predict Wix’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 30.1% for the last 12 months will decrease to 25.8%.

Wix isn’t a terrible business, but it doesn’t pass our quality test. After the recent drawdown, the stock trades at 2.1× forward price-to-sales (or $77.67 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better stocks to buy right now. We’d suggest looking at one of our top digital advertising picks.

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