CTS has been treading water for the past six months, recording a small loss of 2.1% while holding steady at $42.11. The stock also fell short of the S&P 500’s 15.7% gain during that period.
Is there a buying opportunity in CTS, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is CTS Not Exciting?
We're cautious about CTS. Here are three reasons there are better opportunities than CTS and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, CTS grew its sales at a mediocre 4.5% compounded annual growth rate. This was below our standard for the business services sector.
2. Fewer Distribution Channels Limit its Ceiling
With $520.9 million in revenue over the past 12 months, CTS is a small player in the business services space, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and numerous distribution channels.
3. EPS Took a Dip Over the Last Two Years
Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.
Sadly for CTS, its EPS and revenue declined by 4.5% and 5.7% annually over the last two years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, CTS’s low margin of safety could leave its stock price susceptible to large downswings.
Final Judgment
CTS isn’t a terrible business, but it doesn’t pass our bar. With its shares lagging the market recently, the stock trades at 17.5× forward P/E (or $42.11 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 stocks to buy right now. Let us point you toward a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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