Over the past six months, BrightView’s stock price fell to $12.73. Shareholders have lost 18.1% of their capital, which is disappointing considering the S&P 500 has climbed by 13.9%. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy BrightView, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free for active Edge members.
Why Do We Think BrightView Will Underperform?
Despite the more favorable entry price, we're sitting this one out for now. Here are three reasons we avoid BV and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, BrightView grew its sales at a sluggish 2.6% compounded annual growth rate. This fell short of our benchmarks.
2. EPS Trending Down
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Sadly for BrightView, its EPS declined by 1.7% annually over the last five years while its revenue grew by 2.6%. 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).
BrightView historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 2.9%, lower than the typical cost of capital (how much it costs to raise money) for industrials companies.
Final Judgment
We cheer for all companies making their customers lives easier, but in the case of BrightView, we’ll be cheering from the sidelines. Following the recent decline, the stock trades at 17.1× forward P/E (or $12.73 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. There are superior stocks to buy right now. We’d recommend looking at the most entrenched endpoint security platform on the market.
Stocks We Would Buy Instead of BrightView
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