Over the past six months, Everest Group’s shares (currently trading at $313.45) have posted a disappointing 9.8% loss, well below the S&P 500’s 21.3% gain. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy Everest Group, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free for active Edge members.
Why Is Everest Group Not Exciting?
Even though the stock has become cheaper, we're swiping left on Everest Group for now. Here are three reasons you should be careful with EG and a stock we'd rather own.
1. Revenue Projections Show Stormy Skies Ahead
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 Everest Group’s revenue to drop by 2.3%, a decrease from its 11.7% annualized growth for the past two years. This projection doesn't excite us and indicates its products and services will see some demand headwinds.
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.
Everest Group’s EPS grew at a weak 2% compounded annual growth rate over the last five years, lower than its 14.4% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
Everest Group isn’t a terrible business, but it doesn’t pass our bar. After the recent drawdown, the stock trades at 0.8× forward P/B (or $313.45 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are superior stocks to buy right now. We’d recommend looking at one of our top software and edge computing picks.
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