Concentrix has been on fire lately. In the past six months alone, the company’s stock price has rocketed 41.9%, reaching $56.14 per share. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is there a buying opportunity in Concentrix, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Concentrix Not Exciting?
We’re glad investors have benefited from the price increase, but we're sitting this one out for now. Here are three reasons why there are better opportunities than CNXC and a stock we'd rather own.
1. 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 Concentrix’s revenue to rise by 1%, a deceleration versus its 22.2% annualized growth for the past two years. This projection doesn't excite us and implies its products and services will see some demand headwinds.
2. EPS Growth Has Stalled Over the Last Two Years
While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.
Concentrix’s flat EPS over the last two years was worse than its 22.2% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
3. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Concentrix historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 7%, somewhat low compared to the best business services companies that consistently pump out 25%+.
Final Judgment
Concentrix isn’t a terrible business, but it isn’t one of our picks. Following the recent rally, the stock trades at 4.7× forward P/E (or $56.14 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're pretty confident there are more exciting stocks to buy at the moment. We’d recommend looking at one of our top digital advertising picks.
Stocks We Would Buy Instead of Concentrix
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