Q2 Holdings has gotten torched over the last six months - since June 2025, its stock price has dropped 20.6% to $71.01 per share. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Q2 Holdings, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free for active Edge members.
Why Is Q2 Holdings Not Exciting?
Even though the stock has become cheaper, we're swiping left on Q2 Holdings for now. Here are three reasons there are better opportunities than QTWO and a stock we'd rather own.
1. Weak ARR Points to Soft Demand
While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.
Q2 Holdings’s ARR came in at $888.4 million in Q3, and over the last four quarters, its year-on-year growth averaged 11.3%. This performance was underwhelming and suggests that increasing competition is causing challenges in securing longer-term commitments. 
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Q2 Holdings’s revenue to rise by 10.7%, a slight deceleration versus its 15% annualized growth for the past five years. This projection is underwhelming and indicates its products and services will face some demand challenges.
3. Low Gross Margin Reveals Weak Structural Profitability
For software companies like Q2 Holdings, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.
Q2 Holdings’s gross margin is substantially worse than most software businesses, signaling it has relatively high infrastructure costs compared to asset-lite businesses like ServiceNow. As you can see below, it averaged a 53.4% gross margin over the last year. Said differently, Q2 Holdings had to pay a chunky $46.63 to its service providers for every $100 in revenue.
The market not only cares about gross margin levels but also how they change over time because expansion creates firepower for profitability and free cash generation. Q2 Holdings has seen gross margins improve by 6.2 percentage points over the last 2 year, which is elite in the software space.
Final Judgment
Q2 Holdings’s business quality ultimately falls short of our standards. Following the recent decline, the stock trades at 5.9× forward price-to-sales (or $71.01 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at one of Charlie Munger’s all-time favorite businesses.
Stocks We Like More Than Q2 Holdings
The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
Stocks that have made our list include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.
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