Over the past six months, Equifax’s stock price fell to $177.62. Shareholders have lost 13.5% of their capital, which is disappointing considering the S&P 500 has climbed by 6.3%. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.
Is there a buying opportunity in Equifax, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Equifax Not Exciting?
Even though the stock has become cheaper, we’re sitting this one out for now. Here are two reasons why there are better opportunities than EFX, plus one stock we’d rather own.
1. Shrinking Adjusted Operating Margin
Adjusted operating margin is one of the best measures of profitability because it tells us how much money a company takes home after subtracting all core expenses, like marketing and R&D. It also removes various one-time costs to paint a better picture of normalized profits.
Analyzing the trend in its profitability, Equifax’s adjusted operating margin decreased by 3.6 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its adjusted operating margin for the trailing 12 months was 20.2%.
2. EPS Barely Growing
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Equifax’s EPS grew at a weak 1.1% compounded annual growth rate over the last five years, lower than its 6.8% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
Equifax isn’t a terrible business, but it doesn’t pass our bar. After the recent drawdown, the stock trades at 18.8× forward P/E (or $177.62 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. Let us point you toward a dominant aerospace business that has perfected its M&A strategy.
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