What a brutal six months it’s been for Newmark. The stock has dropped 28.2% and now trades at $10.48, rattling many shareholders. This might have investors contemplating their next move.
Is now the time to buy Newmark, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Even with the cheaper entry price, we don't have much confidence in Newmark. Here are three reasons why there are better opportunities than NMRK and a stock we'd rather own.
Why Do We Think Newmark Will Underperform?
Founded in 1929, Newmark (NASDAQ: NMRK) provides commercial real estate services, including leasing advisory, global corporate services, investment sales and capital markets, property and facilities management, valuation and advisory, and consulting.
1. Long-Term Revenue Growth Disappoints
Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, Newmark’s 4.3% annualized revenue growth over the last five years was sluggish. This fell short of our benchmark for the consumer discretionary sector. 
2. EPS Trending Down
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Sadly for Newmark, its EPS declined by 5.1% annually over the last five years while its revenue grew by 4.3%. This tells us the company became less profitable on a per-share basis as it expanded.
3. Cash Burn Ignites Concerns
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
While Newmark posted positive free cash flow this quarter, the broader story hasn’t been so clean. Over the last two years, Newmark’s demanding reinvestments to stay relevant have drained its resources, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 7%, meaning it lit $6.96 of cash on fire for every $100 in revenue.
Final Judgment
Newmark doesn’t pass our quality test. After the recent drawdown, the stock trades at 7.2× forward price-to-earnings (or $10.48 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are superior stocks to buy right now. We’d suggest looking at one of our all-time favorite software stocks.
Stocks We Like More Than Newmark
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