Kforce (KFRC): Buy, Sell, or Hold Post Q3 Earnings?

What a brutal six months it’s been for Kforce. The stock has dropped 24.7% and now trades at $33.40, rattling many shareholders. This may have investors wondering how to approach the situation.

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

Why Do We Think Kforce Will Underperform?

Even though the stock has become cheaper, we're swiping left on Kforce for now. Here are three reasons we avoid KFRC and a stock we'd rather own.

1. Long-Term Revenue Growth Flatter Than a Pancake

A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, Kforce struggled to consistently increase demand as its $1.34 billion of sales for the trailing 12 months was close to its revenue five years ago. This was below our standards and is a sign of poor business quality.

2. EPS Trending Down

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Sadly for Kforce, its EPS declined by 1.4% annually over the last five years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences.If the tide turns unexpectedly, Kforce’s low margin of safety could leave its stock price susceptible to large downswings.

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. Unfortunately, Kforce’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

Kforce doesn’t pass our quality test. After the recent drawdown, the stock trades at 14.9× forward P/E (or $33.40 per share). This multiple tells us a lot of good news is priced in - we think there are better stocks to buy right now. We’d suggest looking at a dominant Aerospace business that has perfected its M&A strategy.

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