What a brutal six months it’s been for ICF International. The stock has dropped 49.6% and now trades at $83.94, rattling many shareholders. This might have investors contemplating their next move.
Is now the time to buy ICF International, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Despite the more favorable entry price, we're sitting this one out for now. Here are three reasons why ICFI doesn't excite us and a stock we'd rather own.
Why Is ICF International Not Exciting?
Operating at the intersection of policy, technology, and implementation for over five decades, ICF International (NASDAQ: ICFI) provides professional consulting services and technology solutions to government agencies and commercial clients across energy, health, environment, and security sectors.
1. Weak Backlog Growth Points to Soft Demand
Investors interested in Government & Technical Consulting companies should track backlog in addition to reported revenue. This metric shows the value of outstanding orders that have not yet been executed or delivered, giving visibility into ICF International’s future revenue streams.
ICF International’s backlog came in at $3.8 million in the latest quarter, and over the last two years, its year-on-year growth averaged 4.3%. This performance slightly lagged the sector and suggests that increasing competition is causing challenges in winning new orders. 
2. 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 ICF International’s revenue to drop by 6.2%, a decrease from its 6.5% annualized growth for the past two years. This projection is underwhelming and implies its products and services will see some demand headwinds.
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).
ICF International historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 7.6%, somewhat low compared to the best business services companies that consistently pump out 25%+.
Final Judgment
ICF International isn’t a terrible business, but it doesn’t pass our bar. After the recent drawdown, the stock trades at 10.4× forward price-to-earnings (or $83.94 per share). Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're pretty confident there are more exciting stocks to buy at the moment. Let us point you toward one of our top software and edge computing picks.
Stocks We Like More Than ICF International
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