Jabil (JBL): Buy, Sell, or Hold Post Q2 Earnings?

Jabil currently trades at $220.68 and has been a dream stock for shareholders. It’s returned 529% since August 2020, blowing past the S&P 500’s 89.1% gain. The company has also beaten the index over the past six months as its stock price is up 33.4% thanks to its solid quarterly results.

Is now the time to buy Jabil, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.

Why Is Jabil Not Exciting?

We’re happy investors have made money, but we don't have much confidence in Jabil. Here are three reasons why we avoid JBL 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. Regrettably, Jabil’s sales grew at a sluggish 1.4% compounded annual growth rate over the last five years. This fell short of our benchmarks.

2. Recent EPS Growth Below Our Standards

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.

Jabil’s EPS grew at a weak 1.6% compounded annual growth rate over the last two years. On the bright side, this performance was higher than its 10.1% annualized revenue declines and tells us management adapted its cost structure in response to a challenging demand environment.

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.

Jabil has shown weak cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 3.1%, subpar for a business services business.

Final Judgment

Jabil isn’t a terrible business, but it doesn’t pass our quality test. With its shares beating the market recently, the stock trades at 21.9× forward P/E (or $220.68 per share). This valuation tells us a lot of optimism is priced in - we think other companies feature superior fundamentals at the moment. We’d recommend looking at one of our top software and edge computing picks.

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