3 Reasons GETY is Risky and 1 Stock to Buy Instead

Shareholders of Getty Images would probably like to forget the past six months even happened. The stock dropped 40.4% and now trades at $1.67. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.

Is now the time to buy Getty Images, 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 Getty Images Will Underperform?

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

1. Long-Term Revenue Growth Disappoints

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, Getty Images’s 3.2% annualized revenue growth over the last four years was tepid. This fell short of our benchmark for the business services sector.

2. Free Cash Flow Margin Dropping

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.

As you can see below, Getty Images’s margin dropped by 7.3 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Getty Images’s free cash flow margin for the trailing 12 months was 5.7%.

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, Getty Images’s ROIC has unfortunately decreased. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Final Judgment

Getty Images falls short of our quality standards. Following the recent decline, the stock trades at 2.4× forward EV-to-EBITDA (or $1.67 per share). This valuation multiple is fair, but we don’t have much confidence in the company. There are better investments elsewhere. We’d recommend looking at a dominant Aerospace business that has perfected its M&A strategy.

Stocks We Like More Than Getty Images

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