TaskUs has been on fire lately. In the past six months alone, the company’s stock price has rocketed 48.1%, reaching $17.14 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

Is now the time to buy TaskUs, 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 TaskUs Not Exciting?

We’re glad investors have benefited from the price increase, but we're sitting this one out for now. Here are three reasons why TASK doesn't excite us and a stock we'd rather own.

1. EPS Barely Growing

We track the change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

TaskUs’s full-year EPS grew at a weak 2% compounded annual growth rate over the last three years, worse than the broader business services sector.

2. Free Cash Flow Margin Dropping

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

As you can see below, TaskUs’s margin dropped by 3.7 percentage points over the last five years. Continued declines could signal it is in the middle of an investment cycle. TaskUs’s free cash flow margin for the trailing 12 months was 4.4%.

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? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

TaskUs historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 4.3%, lower than the typical cost of capital (how much it costs to raise money) for business services companies.

Final Judgment

TaskUs isn’t a terrible business, but it isn’t one of our picks. After the recent surge, the stock trades at 11.4× forward P/E (or $17.14 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are superior stocks to buy right now. We’d suggest looking at one of our all-time favorite software stocks.

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