The Street Hasn't Appreciated The Post-IPO Progress Of Box

Raymond James upgraded shares of Box Inc BOX, as it believes the risk/reward for the shares look compelling at current levels. The firm thinks investors have largely ignored the company's impressive progress on improving profitability, while sustaining 20–30 percent revenue growth.

As such, the firm upgraded shares of the company from Market Perform to Outperform, with a $26 price target.

Analyst Brian Peterson is of the view the significant progress Box made on multiple fronts since its IPO, especially in moderating operation losses and improving cash flow generation, has not been reflected in shares. The analyst noted that the company's operating margins have improved 40 basis points compared to IPO levels.

Going forward, the analyst thinks the company will generate positive free cash flow. Additionally, the analyst noted that Box has developed a number of new products that have potentially significant increases in seat level economics, while also facilitating the establishment of key go to market partnership with companies such as International Business Machines Corp. IBM, Microsoft Corporation MSFT and Fujitsu Ltd (ADR) FJTSY (see Peterson's track record here).

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"All of this progress is seemingly lost on investors, who have pushed Box shares down ~25% since the first day of trading (vs. the market up 22% since that time)," the firm said.

Therefore, the firm said it encourages investors to reconsider.

Meanwhile, the firm thinks the company's target of achieving $1 billion in sales in 2021 appears reasonable, given the solid results with its new products such as Zones, Governance and KeySafeits and the firm's belief that average revenue per customer will continue to expand from current levels.

On valuation, the firm said it sees upside for the shares at $26, with downside support at $14. With the current market price of the stock around $18, the firm encourages investors to "double down" on an investment that it believes has 2 times the potential upside vs. downside.

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