Analyst: Box Inc. Spending To Weigh On Margins

Box Inc.

is spending heavily to capture new markets but resulting limits on its margin growth make it's stock fairly valued, an analyst said Wednesday. The cloud-based data storage and management company's shares are down 20 percent in the year to date and changed hands recently at $18.65, off 5.6 percent. Morgan Stanley's Keith Weiss on Wednesday reiterated an Equal Weight rating and and $20 target. Weiss said the company can meet its profit targets only by significantly slowing down its expense growth. Los Altos, California-based Box expects to increase its sales force by 20 percent in 2016, while growing its revenue by about 30 percent. While Box aims to break even on a cash flow basis within two years, Weiss said that may not happen until 2018, assuming that spending growth slows to about 10 percent, from a current rate of about 28 percent. The company, which last month missed Wall Street expectations by a wide margin, is aiming to expand its focus from storage services into management software for health care, retail, media and finance. "We'd like to see more signs that these investments are translating into sustained growth and margin expansion," Weiss said.