Over the past six months, Northern Trust has been a great trade, beating the S&P 500 by 18.8%. Its stock price has climbed to $134.70, representing a healthy 37.5% increase. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is there a buying opportunity in Northern Trust, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Northern Trust Not Exciting?
Despite the momentum, we're cautious about Northern Trust. Here are two reasons you should be careful with NTRS 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. Any business can put up a good quarter or two, but many enduring ones grow for years.
Over the last five years, Northern Trust grew its revenue at a tepid 4.9% compounded annual growth rate. This was below our standard for the financials sector.
2. EPS Barely Growing
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.
Northern Trust’s unimpressive 5.1% annual EPS growth over the last five years aligns with its revenue performance. On the bright side, this tells us its incremental sales were profitable.
Final Judgment
Northern Trust isn’t a terrible business, but it isn’t one of our picks. With its shares beating the market recently, the stock trades at 15.4× forward P/E (or $134.70 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere. We’d suggest looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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