3 Reasons AD is Risky and 1 Stock to Buy Instead

Array currently trades at $49.06 per share and has shown little upside over the past six months, posting a small loss of 3.8%. The stock also fell short of the S&P 500’s 3.1% gain during that period.

Is there a buying opportunity in Array, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Do We Think Array Will Underperform?

We don't have much confidence in Array. Here are three reasons why AD doesn't excite us and a stock we'd rather own.

1. Revenue Spiraling Downwards

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Array’s demand was weak and its revenue declined by 13.9% per year. This wasn’t a great result and is a sign of poor business quality.

2. EPS Trending Down

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.

Sadly for Array, its EPS declined by 26.8% annually over the last five years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.

3. Previous Growth Initiatives Haven’t Paid Off Yet

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Array historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 0.6%, lower than the typical cost of capital (how much it costs to raise money) for business services companies.

Final Judgment

We cheer for all companies making their customers lives easier, but in the case of Array, we’ll be cheering from the sidelines. With its shares lagging the market recently, the stock trades at 26.4× forward EV-to-EBITDA (or $49.06 per share). This multiple tells us a lot of good news is priced in - you can find more timely opportunities elsewhere. Let us point you toward a top digital advertising platform riding the creator economy.

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