Exponent (EXPO): Buy, Sell, or Hold Post Q2 Earnings?

Over the last six months, Exponent’s shares have sunk to $69.66, producing a disappointing 17.2% loss - a stark contrast to the S&P 500’s 16% gain. This might have investors contemplating their next move.

Is now the time to buy Exponent, 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 Exponent Not Exciting?

Even with the cheaper entry price, we're cautious about Exponent. Here are three reasons there are better opportunities than EXPO and a stock we'd rather own.

1. Lackluster Revenue Growth

Long-term growth is the most important, but within business services, a stretched historical view may miss new innovations or demand cycles. Exponent’s recent performance shows its demand has slowed as its annualized revenue growth of 3.3% over the last two years was below its five-year trend.

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.

Exponent’s unimpressive 5.6% annual EPS growth over the last five years aligns with its revenue performance. On the bright side, this tells us its incremental sales were profitable.

3. New Investments Fail to Bear Fruit as ROIC Declines

A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Exponent’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Final Judgment

Exponent isn’t a terrible business, but it doesn’t pass our quality test. After the recent drawdown, the stock trades at 33.4× forward P/E (or $69.66 per share). This multiple tells us a lot of good news is priced in - we think other companies feature superior fundamentals at the moment. Let us point you toward our favorite semiconductor picks and shovels play.

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