Over the past six months, ABM’s shares (currently trading at $44.41) have posted a disappointing 8.9% loss, well below the S&P 500’s 7.7% gain. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy ABM, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is ABM Not Exciting?
Even with the cheaper entry price, we don't have much confidence in ABM. Here are three reasons you should be careful with ABM and a stock we'd rather own.
1. Slow Organic Growth Suggests Waning Demand In Core Business
Investors interested in Industrial & Environmental Services companies should track organic revenue in addition to reported revenue. This metric gives visibility into ABM’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.
Over the last two years, ABM’s organic revenue averaged 3.4% year-on-year growth. This performance was underwhelming and suggests it may need to improve its products, pricing, or go-to-market strategy, which can add an extra layer of complexity to its operations. 
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.
ABM’s unimpressive 7.1% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.
3. Mediocre Free Cash Flow Margin Limits Reinvestment Potential
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.
ABM has shown poor cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 1.9%, lousy for a business services business.
Final Judgment
ABM isn’t a terrible business, but it doesn’t pass our bar. After the recent drawdown, the stock trades at 11.2× forward P/E (or $44.41 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at the most dominant software business in the world.
Stocks We Would Buy Instead of ABM
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