3 Reasons to Sell SAIC and 1 Stock to Buy Instead

SAIC’s 19.6% return over the past six months has outpaced the S&P 500 by 13.1%, and its stock price has climbed to $118.22 per share. This performance may have investors wondering how to approach the situation.

Is there a buying opportunity in SAIC, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Do We Think SAIC Will Underperform?

Despite the momentum, we're sitting this one out for now. Here are three reasons why you should be careful with SAIC and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

A company’s long-term performance is an indicator of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, SAIC’s 2.9% annualized revenue growth over the last five years was sluggish. This was below our standards.

2. Projected Revenue Growth Is Slim

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect SAIC’s revenue to rise by 2.4%. While this projection indicates its newer products and services will catalyze better top-line performance, it is still below the sector average.

3. Previous Growth Initiatives Haven’t Impressed

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

SAIC historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 11.9%, somewhat low compared to the best business services companies that consistently pump out 25%+.

Final Judgment

SAIC doesn’t pass our quality test. With its shares outperforming the market lately, the stock trades at 12.3× forward P/E (or $118.22 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are better investments elsewhere. Let us point you toward an all-weather company that owns household favorite Taco Bell.

Stocks We Like More Than SAIC

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