Box stock has gone parabolic this month and reached a record high as investors predicted that its revenue growth will continue. It jumped to $41.75, up by 95% from its lowest level this year, with its market cap nearing $6 billion. Still, the stock has now become highly overbought, suggesting that a pullback is possible.
Box stock has jumped as its growth remains steady
Box, one of the top pioneers of the cloud storage industry, has come into the spotlight in the past few months. Its attention rose after the company published its financial results, which showed that its revenue and RPO continued rising.
Box made $321 million in the second quarter, up by 9% from a year earlier. Its remaining performance obligations (RPO) jumped by 15% to $1.7 billion, providing a clear visibility of its business.
Most importantly, the company’s approach to costs helped to boost its profitability, with its GAAP gross profit rising to $260 million and its operating profit hitting $32.6 million. This growth happened as several companies like Toyota Moto, Piper Sandler, and Red Hat embraced its business.
Based on its RPO and guidance, analysts expect that Box’s Q3 revenue will come in at $329 million, up by 9.28% from a year earlier. Its annual revenue is expected to jump to $1.29 billion, followed by $1.4 billion next year.
Box shares face some potential risk
Still, despite the ongoing optimism, there are signs that Box stock faces some major risks. One of them is that the stock has moved further away from expectations. Kyro data shows that the average target among analysts is $34.40, down by 18% from the current level. The most optimistic analyst is from DA Davidson, who see it rising to $50. The lowest target is $18, much lower than where it is today.
The other risk facing Box stock is that it is highly overvalued. It has a forward price-to-earnings ratio of 26, much higher than the sector median of 21. Its multiple is higher than that of other top companies like Nvidia, Micron, and Sandisk. This means that it needs to keep delivering strong numbers to justify the valuation.
Box is also overvalued based on the Rule-of-40 calculation. It has a net income and a levered FCF margins of 10.5% and 30%, aganst an annual growth rate of 9%. This means that its multiple is below the cut off area of 40.
Box share price technical analysis
Box stock chart | Source: TradingView
The daily chart shows that the Box share price has been in a strong upward trend this year and is now trading at its all-time high of $41.75. It recently crossed the important resistance level of $38.80, its highest point in January.
The stock has remained above the 50-day and 100-day Exponential Moving Averages (EMA), a sign that bulls remain in control. At the same time, the Relative Strength Index (RSI) has jumped to the extreme overbought level of 83, its highest level in years.
Therefore, the fact that the stock is overbought and further away from the short and long-term moving averages suggests that it may reverse soon. If this happens, it may drop to the key support level of $38.80, its highest swing in June last year.
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