Even though Brady (currently trading at $77.70 per share) has gained 10.7% over the last six months, it has lagged the S&P 500’s 23.9% return during that period. This might have investors contemplating their next move.
Is now the time to buy Brady, 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 Is Brady Not Exciting?
We're swiping left on Brady for now. Here are three reasons we avoid BRC and a stock we'd rather own.
1. Slow Organic Growth Suggests Waning Demand In Core Business
We can better understand Safety & Security Services companies by analyzing their organic revenue. This metric gives visibility into Brady’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.
Over the last two years, Brady’s organic revenue averaged 1.6% year-on-year growth. This performance was underwhelming and suggests it may need to improve its products, pricing, or go-to-market strategy, which can add an extra layer of complexity to its operations.
2. Fewer Distribution Channels Limit its Ceiling
With $1.51 billion in revenue over the past 12 months, Brady 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.
3. Free Cash Flow Margin Dropping
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
As you can see below, Brady’s margin dropped by 5.4 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Brady’s free cash flow margin for the trailing 12 months was 10.1%.
Final Judgment
Brady’s business quality ultimately falls short of our standards. With its shares trailing the market in recent months, the stock trades at 15.6× forward P/E (or $77.70 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at an all-weather company that owns household favorite Taco Bell.
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