2 Reasons to Avoid FDS and 1 Stock to Buy Instead

FactSet’s stock price has taken a beating over the past six months, shedding 34.7% of its value and falling to $287 per share. This was partly due to its softer quarterly results and might have investors contemplating their next move.

Is now the time to buy FactSet, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.

Why Is FactSet Not Exciting?

Despite the more favorable entry price, we don't have much confidence in FactSet. Here are two reasons you should be careful with FDS and a stock we'd rather own.

1. Lackluster Revenue Growth

Long-term growth is the most important, but within financials, a stretched historical view may miss recent interest rate changes and market returns. FactSet’s recent performance shows its demand has slowed as its annualized revenue growth of 5.5% over the last two years was below its five-year trend.

2. EPS Barely Growing

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

FactSet’s unimpressive 9.3% 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.

Final Judgment

FactSet’s business quality ultimately falls short of our standards. Following the recent decline, the stock trades at 15.7× forward P/E (or $287 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better investments elsewhere. We’d recommend looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.

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