Genpact currently trades at $43.18 per share and has shown little upside over the past six months, posting a middling return of 2.6%.
Is now the time to buy Genpact, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Genpact Not Exciting?
We're sitting this one out for now. Here are three reasons why there are better opportunities than G and a stock we'd rather own.
1. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Genpact’s revenue to rise by 3.4%, a slight deceleration versus its 5.9% annualized growth for the past five years. This projection doesn't excite us and implies its products and services will see some demand headwinds.
2. Recent EPS Growth Below Our Standards
While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.
Genpact’s EPS grew at an unimpressive 9.4% compounded annual growth rate over the last two years. On the bright side, this performance was higher than its 5.1% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.
3. 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, Genpact’s margin dropped by 4 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. Genpact’s free cash flow margin for the trailing 12 months was 12.3%.
Final Judgment
Genpact isn’t a terrible business, but it doesn’t pass our quality test. That said, the stock currently trades at 12× forward P/E (or $43.18 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. We’d recommend looking at the Amazon and PayPal of Latin America.
Stocks We Would Buy Instead of Genpact
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