What a brutal six months it’s been for Brink's. The stock has dropped 23.4% and now trades at $84.81, rattling many shareholders. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Brink's, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Despite the more favorable entry price, we're swiping left on Brink's for now. Here are three reasons why you should be careful with BCO and a stock we'd rather own.
Why Is Brink's Not Exciting?
Known for its iconic armored trucks that have been a fixture in American cities since 1859, Brink's (NYSE: BCO) provides secure transportation and management of cash and valuables for banks, retailers, and other businesses worldwide.
1. Projected Revenue Growth Shows Limited Upside
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 Brink’s revenue to stall, a deceleration versus its 5.1% annualized growth for the past two years. This projection doesn't excite us and implies its products and services will face some demand challenges.
2. 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, Brink’s margin dropped by 1.3 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Brink’s free cash flow margin for the trailing 12 months was 4.1%.
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? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Brink's historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 12.5%, somewhat low compared to the best business services companies that consistently pump out 25%+.
Final Judgment
Brink's isn’t a terrible business, but it doesn’t pass our quality test. Following the recent decline, the stock trades at 12.2× forward price-to-earnings (or $84.81 per share). Investors with a higher risk tolerance might like the company, but 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 one of our all-time favorite software stocks.
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