SS&C trades at $88.95 per share and has stayed right on track with the overall market, gaining 6.8% over the last six months. At the same time, the S&P 500 has returned 10.5%.

Is now the time to buy SS&C, 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 Is SS&C Not Exciting?

We don't have much confidence in SS&C. Here are three reasons why SSNC doesn't excite us and a stock we'd rather own.

1. Shrinking Adjusted Operating Margin

Adjusted operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies because it excludes non-recurring expenses, interest on debt, and taxes.

Looking at the trend in its profitability, SS&C’s adjusted operating margin decreased by 1.2 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 38.1%.

2. Free Cash Flow Margin Dropping

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.

As you can see below, SS&C’s margin dropped by 4.1 percentage points over the last five years. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. If the longer-term trend returns, it could signal increasing investment needs and capital intensity. SS&C’s free cash flow margin for the trailing 12 months was 21.1%.

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).

SS&C historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 6.6%, somewhat low compared to the best business services companies that consistently pump out 25%+.

Final Judgment

SS&C isn’t a terrible business, but it isn’t one of our picks. That said, the stock currently trades at 13.6× forward P/E (or $88.95 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better stocks to buy right now. Let us point you toward one of our all-time favorite software stocks.

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