Shareholders of ManpowerGroup would probably like to forget the past six months even happened. The stock dropped 25.1% and now trades at $28.39. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy ManpowerGroup, 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.
Why Do We Think ManpowerGroup Will Underperform?
Even though the stock has become cheaper, we're cautious about ManpowerGroup. Here are three reasons you should be careful with MAN 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 put up a good quarter or two, but many enduring ones grow for years. Unfortunately, ManpowerGroup struggled to consistently increase demand as its $17.96 billion of sales for the trailing 12 months was close to its revenue five years ago. This was below our standards and signals it’s a low quality business.
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.
Sadly for ManpowerGroup, its EPS declined by 21.9% 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. New Investments Fail to Bear Fruit as ROIC Declines
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, ManpowerGroup’s ROIC has decreased significantly over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
Final Judgment
ManpowerGroup doesn’t pass our quality test. After the recent drawdown, the stock trades at 7.9× forward P/E (or $28.39 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 top software and edge computing picks.
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