Over the past six months, CSG has been a great trade, beating the S&P 500 by 24.6%. Its stock price has climbed to $64.29, representing a healthy 26.3% increase. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is now the time to buy CSG, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Do We Think CSG Will Underperform?

Despite the momentum, we're swiping left on CSG for now. Here are three reasons why you should be careful with CSGS and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, CSG grew its sales at a mediocre 4.2% compounded annual growth rate. This was below our standard for the business services sector.

2. Projected Revenue Growth Is Slim

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 CSG’s revenue to rise by 2.5%, close to its 4.2% annualized growth for the past five years. This projection is underwhelming and suggests its newer products and services will not lead to better top-line performance yet.

3. New Investments Fail to Bear Fruit as ROIC Declines

ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, CSG’s ROIC has decreased over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Final Judgment

CSG doesn’t pass our quality test. With its shares topping the market in recent months, the stock trades at 13.4× forward P/E (or $64.29 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are better investments elsewhere. We’d suggest looking at one of Charlie Munger’s all-time favorite businesses.

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