Benchmark has been on fire lately. In the past six months alone, the company’s stock price has rocketed 41.4%, reaching $57.81 per share. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now the time to buy Benchmark, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Benchmark Not Exciting?
Despite the momentum, we're swiping left on Benchmark for now. Here are three reasons you should be careful with BHE and a stock we'd rather own.
1. Revenue Tumbling Downwards
We at StockStory place the most emphasis on long-term growth, but within business services, a stretched historical view may miss recent innovations or disruptive industry trends. Benchmark’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 3.2% over the last two years. 
2. Breakeven Free Cash Flow Limits Reinvestment Potential
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Benchmark broke even from a free cash flow perspective over the last five years, giving the company limited opportunities to return capital to shareholders.
3. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Benchmark historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 7.2%, somewhat low compared to the best business services companies that consistently pump out 25%+.
Final Judgment
Benchmark isn’t a terrible business, but it doesn’t pass our quality test. After the recent rally, the stock trades at 23× forward P/E (or $57.81 per share). Beauty is in the eye of the beholder, but our analysis shows the upside isn’t great compared to the potential downside. We're fairly confident there are better investments elsewhere. We’d recommend looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
Stocks We Like More Than Benchmark
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