Exponent’s stock price has taken a beating over the past six months, shedding 26.7% of its value and falling to $81.90 per share. This may have investors wondering how to approach the situation.
Is now the time to buy Exponent, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free .
Even with the cheaper entry price, we're swiping left on Exponent for now. Here are three reasons why we avoid EXPO and a stock we'd rather own.
Why Is Exponent Not Exciting?
With a team of over 800 consultants holding advanced degrees in 90+ technical disciplines, Exponent (NASDAQ:EXPO) is a science and engineering consulting firm that investigates complex problems and provides expert analysis for clients across various industries.
1. Fewer Distribution Channels Limit its Ceiling
With $518.5 million in revenue over the past 12 months, Exponent is a small player in the business services space, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and numerous distribution channels. On the bright side, it can grow faster because it has more room to expand.
2. Recent EPS Growth Below Our Standards
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.
Exponent’s unimpressive 5.4% annual EPS growth over the last two years aligns with its revenue trend. On the bright side, this tells us its incremental sales were profitable.
3. New Investments Fail to Bear Fruit as ROIC Declines
A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Exponent’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
Exponent isn’t a terrible business, but it doesn’t pass our bar. After the recent drawdown, the stock trades at 39.4× forward price-to-earnings (or $81.90 per share). At this valuation, there’s a lot of good news priced in - you can find better investment opportunities elsewhere. We’d recommend looking at an all-weather company that owns household favorite Taco Bell .
Stocks We Would Buy Instead of Exponent
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