The past six months have been a windfall for Invesco’s shareholders. The company’s stock price has jumped 51%, hitting $22.94 per share. This performance may have investors wondering how to approach the situation.
Is there a buying opportunity in Invesco, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Do We Think Invesco Will Underperform?
We’re glad investors have benefited from the price increase, but we're sitting this one out for now. Here are three reasons there are better opportunities than IVZ and a stock we'd rather own.
1. Revenue Spiraling Downwards
A company’s long-term performance is an indicator 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, Invesco’s demand was weak and its revenue declined by 2.4% per year. This was below our standards and is a sign of poor business quality.
2. EPS Growth Has Stalled
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Invesco’s flat EPS over the last five years was weak. On the bright side, this performance was better than its 2.4% annualized revenue declines.
3. Previous Growth Initiatives Haven’t Impressed
Return on equity, or ROE, quantifies bank profitability relative to shareholder equity - an essential capital source for these institutions. Over extended periods, superior ROE performance drives faster shareholder wealth compounding through reinvestment, share repurchases, and dividend growth.
Over the last five years, Invesco has averaged an ROE of 5.8%, uninspiring for a company operating in a sector where the average shakes out around 10%.
Final Judgment
We see the value of companies driving economic growth, but in the case of Invesco, we’re out. After the recent surge, the stock trades at 11.9× forward P/E (or $22.94 per share). At this valuation, there’s a lot of good news priced in - we think other companies feature superior fundamentals at the moment. Let us point you toward one of our all-time favorite software stocks.
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