Marcus & Millichap (MMI): Buy, Sell, or Hold Post Q2 Earnings?

Over the past six months, Marcus & Millichap’s stock price fell to $31.60. Shareholders have lost 13% of their capital, which is disappointing considering the S&P 500 has climbed by 15.6%. This may have investors wondering how to approach the situation.

Is now the time to buy Marcus & Millichap, 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 Do We Think Marcus & Millichap Will Underperform?

Even with the cheaper entry price, we're cautious about Marcus & Millichap. Here are three reasons why MMI doesn't excite us and a stock we'd rather own.

1. Long-Term Revenue Growth Flatter Than a Pancake

Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Marcus & Millichap struggled to consistently increase demand as its $725.9 million of sales for the trailing 12 months was close to its revenue five years ago. This wasn’t a great result and signals it’s a low quality business.

2. Breakeven Free Cash Flow 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.

Marcus & Millichap broke even from a free cash flow perspective over the last two years, giving the company limited opportunities to return capital to shareholders.

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).

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. Over the last few years, Marcus & Millichap’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Final Judgment

Marcus & Millichap falls short of our quality standards. After the recent drawdown, the stock trades at 242.7× forward P/E (or $31.60 per share). This valuation tells us a lot of optimism is priced in - we think other companies feature superior fundamentals at the moment. Let us point you toward a dominant Aerospace business that has perfected its M&A strategy.

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