Over the past six months, ASGN’s shares (currently trading at $53.77) have posted a disappointing 17.4% loss, well below the S&P 500’s 9.7% gain. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Is there a buying opportunity in ASGN, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Do We Think ASGN Will Underperform?
Even with the cheaper entry price, we're swiping left on ASGN for now. Here are three reasons why ASGN doesn't excite us and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, ASGN’s sales grew at a sluggish 2.9% compounded annual growth rate over the last five years. This was below our standards.
2. Projected Revenue Growth Shows Limited Upside
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 ASGN’s revenue to stall. Although this projection indicates its newer products and services will catalyze better top-line performance, it is still below the sector average.
3. EPS Trending Down
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.
Sadly for ASGN, its EPS declined by 1.8% annually over the last five years while its revenue grew by 2.9%. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
ASGN falls short of our quality standards. After the recent drawdown, the stock trades at 11.5× forward P/E (or $53.77 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better opportunities elsewhere. We’d suggest looking at one of Charlie Munger’s all-time favorite businesses.
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