3 Reasons FTRE is Risky and 1 Stock to Buy Instead

August 27, 2025 at 00:02 AM EDT

FTRE Cover Image

What a brutal six months it’s been for Fortrea. The stock has dropped 36.7% and now trades at $8.90, rattling many shareholders. This may have investors wondering how to approach the situation.

Is there a buying opportunity in Fortrea, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Do We Think Fortrea Will Underperform?

Even though the stock has become cheaper, we're cautious about Fortrea. Here are three reasons there are better opportunities than FTRE and a stock we'd rather own.

1. Revenue Spiraling Downwards

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last four years, Fortrea’s demand was weak and its revenue declined by 2.9% per year. This was below our standards and is a sign of poor business quality.

2. 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. Over the last few years, Fortrea’s ROIC has unfortunately decreased significantly. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Fortrea Trailing 12-Month Return On Invested Capital

3. Short Cash Runway Exposes Shareholders to Potential Dilution

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Fortrea burned through $103.1 million of cash over the last year, and its $1.24 billion of debt exceeds the $81.2 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

Unless the Fortrea’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of Fortrea until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

Final Judgment

Fortrea falls short of our quality standards. After the recent drawdown, the stock trades at 14.8× forward P/E (or $8.90 per share). This valuation tells us a lot of optimism is priced in - we think other companies feature superior fundamentals at the moment. We’d recommend looking at one of our top software and edge computing picks.

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