Burlington has been treading water for the past six months, recording a small loss of 1.7% while holding steady at $268.09.
Is there a buying opportunity in Burlington, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Burlington Not Exciting?
We don't have much confidence in Burlington. Here are three reasons why you should be careful with BURL and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, Burlington’s 7.9% annualized revenue growth over the last five years was mediocre. This fell short of our benchmark for the consumer retail sector. 
2. Free Cash Flow Margin Dropping
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Burlington’s margin dropped by 4 percentage points over the last year. This decrease came from the higher costs associated with opening more stores.
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).
Burlington historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 6.5%, somewhat low compared to the best consumer retail companies that consistently pump out 25%+.
Final Judgment
Burlington isn’t a terrible business, but it doesn’t pass our quality test. That said, the stock currently trades at 28.6× forward P/E (or $268.09 per share). At this valuation, there’s a lot of good news priced in - we think there are better opportunities elsewhere. We’d suggest looking at the most dominant software business in the world.
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