Over the past six months, CBRE’s shares (currently trading at $139.98) have posted a disappointing 15.4% loss, well below the S&P 500’s 7.7% gain. This might have investors contemplating their next move.
Is there a buying opportunity in CBRE, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Do We Think CBRE Will Underperform?
Even though the stock has become cheaper, we’re sitting this one out for now. Here are three reasons why there are better opportunities than CBRE, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, CBRE grew its sales at a 12% compounded annual growth rate. Although this growth is acceptable on an absolute basis, it fell short of our standards for the consumer discretionary sector, which enjoys a number of secular tailwinds.
2. Mediocre Free Cash Flow Margin Limits Reinvestment Potential
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.
CBRE has shown poor cash profitability relative to peers over the last two years, giving the company fewer opportunities to return capital to shareholders. Its free cash flow margin averaged 2.9%, below what we’d expect for a consumer discretionary business.
3. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
On average, CBRE’s ROIC decreased by 2.2 percentage points annually each year over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
Final Judgment
CBRE doesn’t pass our quality test. After the recent drawdown, the stock trades at 18.8× forward P/E (or $139.98 per share). This multiple tells us a lot of good news is priced in - we think there are better stocks to buy right now. We’d suggest looking at a safe-and-steady industrials business benefiting from an upgrade cycle.
Stocks We Would Buy Instead of CBRE
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