Over the past six months, PROG’s stock price fell to $31.82. Shareholders have lost 12.5% of their capital, which is disappointing considering the S&P 500 has climbed by 3.1%. This may have investors wondering how to approach the situation.

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

Why Do We Think PROG Will Underperform?

Despite the more favorable entry price, we're swiping left on PROG for now. Here are three reasons you should be careful with PRG and a stock we'd rather own.

1. Long-Term Revenue Growth Flatter Than a Pancake

A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.

Unfortunately, PROG struggled to consistently increase demand as its $2.46 billion of revenue for the trailing 12 months was close to its revenue five years ago. This wasn’t a great result and signals it’s a low quality business.

2. 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 PROG, its EPS declined by 5.7% annually over the last five years while its revenue was flat. This tells us the company struggled because its fixed cost base made it difficult to adjust to choppy demand.

3. Growing TBVPS Reflects Strong Asset Base

We consider tangible book value per share (TBVPS) an important metric for financial firms. TBVPS represents the real, liquid net worth per share of a company, excluding intangible assets that have debatable value upon liquidation.

Although PROG’s TBVPS increased by a meager 3.8% annually over the last five years, the good news is that its growth has recently accelerated as TBVPS grew at an incredible 49.2% annual clip over the past two years (from $4.26 to $9.47 per share).

Final Judgment

We see the value of companies driving economic growth, but in the case of PROG, we’re out. After the recent drawdown, the stock trades at 7.7× forward P/E (or $31.82 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are superior stocks to buy right now. We’d recommend looking at one of our all-time favorite software stocks.

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