Over the past six months, BrightView has been a great trade, beating the S&P 500 by 17.9%. Its stock price has climbed to $15.99, representing a healthy 25.4% increase. This run-up might have investors contemplating their next move.
Is there a buying opportunity in BrightView, 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.Despite the momentum, we're swiping left on BrightView for now. Here are three reasons why we avoid BV and a stock we'd rather own.
Why Do We Think BrightView Will Underperform?
An official field consultant for Major League Baseball, BrightView (NYSE:BV) offers landscaping design, development, and maintenance.
1. Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Regrettably, BrightView’s sales grew at a sluggish 2.8% compounded annual growth rate over the last five years. This was below our standards. 
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 BrightView, its EPS declined by 8.5% annually over the last five years while its revenue grew by 2.8%. This tells us the company became less profitable on a per-share basis as it expanded.
3. Previous Growth Initiatives Haven’t Paid Off Yet
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
BrightView historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 2%, lower than the typical cost of capital (how much it costs to raise money) for industrials companies.
Final Judgment
We see the value of companies helping their customers, but in the case of BrightView, we’re out. With its shares topping the market in recent months, the stock trades at 18.4× forward price-to-earnings (or $15.99 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. There are superior stocks to buy right now. We’d suggest looking at Wabtec, a leading provider of locomotive services benefiting from an upgrade cycle.
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