Over the past six months, Integral Ad Science’s stock price fell to $8.97. Shareholders have lost 16.3% of their capital, which is disappointing considering the S&P 500 has climbed by 9.7%. This may have investors wondering how to approach the situation.
Is now the time to buy Integral Ad Science, 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 Integral Ad Science Not Exciting?
Even though the stock has become cheaper, we're swiping left on Integral Ad Science for now. Here are two reasons you should be careful with IAS and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Over the last three years, Integral Ad Science grew its sales at a 15.4% compounded annual growth rate. Although this growth is acceptable on an absolute basis, it fell slightly short of our standards for the software sector, which enjoys a number of secular tailwinds.
2. Cash Flow Margin Set to Decline
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.
Over the next year, analysts predict Integral Ad Science’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 26.4% for the last 12 months will decrease to 21.6%.
Final Judgment
Integral Ad Science isn’t a terrible business, but it isn’t one of our picks. After the recent drawdown, the stock trades at 2.4× forward price-to-sales (or $8.97 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are superior stocks to buy right now. We’d suggest looking at our favorite semiconductor picks and shovels play.
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