Shareholders of SAIC would probably like to forget the past six months even happened. The stock dropped 26.6% and now trades at $87.72. This may have investors wondering how to approach the situation.
Is now the time to buy SAIC, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Do We Think SAIC Will Underperform?
Even though the stock has become cheaper, we're swiping left on SAIC for now. Here are two reasons you should be careful with SAIC and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, SAIC’s 1.3% annualized revenue growth over the last five years was sluggish. This was below our standards.
2. Projected Revenue Growth Shows Limited Upside
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 SAIC’s revenue to stall. Although this projection indicates its newer products and services will fuel better top-line performance, it is still below average for the sector.
Final Judgment
We see the value of companies helping their customers, but in the case of SAIC, we’re out. Following the recent decline, the stock trades at 9.4× forward P/E (or $87.72 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment. Let us point you toward one of Charlie Munger’s all-time favorite businesses.
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