Invesco’s 33.6% return over the past six months has outpaced the S&P 500 by 20.8%, and its stock price has climbed to $31.99 per share. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is there a buying opportunity in Invesco, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, 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 why IVZ doesn’t excite us, plus one stock we’d rather own.
1. Long-Term Revenue Growth Flatter Than a Pancake
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years.
Unfortunately, Invesco struggled to consistently increase demand as its $5.04 billion of revenue for the trailing 12 months was close to its revenue five years ago. This was below our standards and is a sign of poor business quality.
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 Invesco, its EPS declined by 1.5% 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. High Debt Levels Increase Risk
Invesco reported $915.4 million of cash and $10.63 billion of debt on its balance sheet in the most recent quarter.
As investors in high-quality companies, we primarily focus on whether a company’s profits can support its debt.
With $1.90 billion of EBITDA over the last 12 months, we view Invesco’s 5.1× net-debt-to-EBITDA ratio as inadequate. The company’s lacking profits relative to its borrowings give it little breathing room, raising red flags.
Final Judgment
We see the value of companies driving economic growth, but in the case of Invesco, we’re out. With its shares topping the market in recent months, the stock trades at 10.6× forward P/E (or $31.99 per share). This valuation tells us a lot of optimism is priced in - you can find more timely opportunities elsewhere. Let us point you toward one of our top software and edge computing picks.
Stocks We Like More Than Invesco
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