Burlington has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 21.8% to $271.09 per share while the index has gained 24.4%.
Is now the time to buy Burlington, 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 for active Edge members.
Why Is Burlington Not Exciting?
We don't have much confidence in Burlington. Here are three reasons you should be careful with BURL and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
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. Unfortunately, Burlington’s 8% annualized revenue growth over the last six years was mediocre. This was below our standard for the consumer retail sector.
2. Free Cash Flow Margin Dropping
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
As you can see below, Burlington’s margin dropped by 6.5 percentage points over the last year. This decrease came from the higher costs associated with opening more stores.
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? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Burlington historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 9%, somewhat low compared to the best consumer retail companies that consistently pump out 25%+.
Final Judgment
Burlington’s business quality ultimately falls short of our standards. That said, the stock currently trades at 26.9× forward P/E (or $271.09 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are superior stocks to buy right now. Let us point you toward a safe-and-steady industrials business benefiting from an upgrade cycle.
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