IAC has been treading water for the past six months, holding steady at $32.86. The stock also fell short of the S&P 500’s 30.6% gain during that period.

Is now the time to buy IAC, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free for active Edge members.

Why Do We Think IAC Will Underperform?

We don't have much confidence in IAC. Here are three reasons you should be careful with IAC 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. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, IAC grew its sales at a sluggish 1.5% compounded annual growth rate. This was below our standards.

2. EPS Trending Down

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

IAC’s full-year EPS turned negative over the last four years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, IAC’s low margin of safety could leave its stock price susceptible to large downswings.

3. Previous Growth Initiatives Have Lost Money

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).

IAC’s five-year average ROIC was negative 3%, meaning management lost money while trying to expand the business. Its returns were among the worst in the business services sector.

Final Judgment

We see the value of companies helping their customers, but in the case of IAC, we’re out. With its shares lagging the market recently, the stock trades at 24.3× forward P/E (or $32.86 per share). This multiple tells us a lot of good news is priced in - you can find more timely opportunities elsewhere. We’d suggest looking at one of our top digital advertising picks.

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