Concentrix (CNXC)

Customer experience solutions provider Concentrix (NASDAQ:CNXC) met Wall Street’s revenue expectations in Q1 CY2025, but sales fell by 1.3% year on year to $2.37 billion. The company expects next quarter’s revenue to be around $2.38 billion, coming in 0.6% above analysts’ estimates. Its non-GAAP profit of $2.79 per share was 7.8% above analysts’ consensus estimates.

Company Overview

With a team of approximately 450,000 employees across 75 countries, Concentrix (NASDAQ:CNXC) designs and delivers customer experience solutions that help global brands manage their customer interactions across digital channels and contact centers.

The sector stands to benefit from ongoing digital transformation, increasing corporate demand for cost efficiencies, and the growing complexity of regulatory and cybersecurity landscapes. For those that invest wisely, AI and automation capabilities could emerge as competitive advantages, enhancing process efficiencies for the companies themselves as well as their clients. On the flip side, AI could be a headwind as well as the technology could lower the barrier to entry in the space and give rise to more self-service solutions. Additional challenges in the years ahead could include wage inflation for highly skilled consultants and potential regulatory scrutiny on outsourcing practices—especially in industries like finance and healthcare where who has access to certain data matters greatly.

Concentrix competes with other customer experience providers like Teleperformance, TELUS International, TaskUs, and Foundever Group, as well as with IT and business process services companies including Accenture, Cognizant, and Genpact that offer complementary services in consulting, design, and analytics.

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years.

With $9.59 billion in revenue over the past 12 months, Concentrix is one of the larger companies in the business services industry and benefits from a well-known brand that influences purchasing decisions.

As you can see below, Concentrix’s 15.2% annualized revenue growth over the last five years was incredible. This shows it had high demand, a useful starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. Concentrix’s annualized revenue growth of 22.2% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.

This quarter, Concentrix reported a rather uninspiring 1.3% year-on-year revenue decline to $2.37 billion of revenue, in line with Wall Street’s estimates. Company management is currently guiding for flat sales next quarter.

Looking further ahead, sell-side analysts expect revenue to remain flat over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and suggests its products and services will see some demand headwinds.

Concentrix was profitable over the last five years but held back by its large cost base. Its average operating margin of 8.3% was weak for a business services business.

Looking at the trend in its profitability, Concentrix’s operating margin might fluctuated slightly but has generally stayed the same over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q1, Concentrix generated an operating profit margin of 7.1%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Concentrix’s EPS grew at a spectacular 13.8% compounded annual growth rate over the last five years. However, this performance was lower than its 15.2% annualized revenue growth, telling us the company became less profitable on a per-share basis as it expanded.

We can take a deeper look into Concentrix’s earnings quality to better understand the drivers of its performance. Concentrix recently raised equity capital, and in the process, grew its share count by 24.2% over the last five years. This has resulted in muted earnings per share growth but doesn’t tell us as much about its future. We prefer to look at operating and free cash flow margins in these situations.

In Q1, Concentrix reported EPS at $2.79, up from $2.57 in the same quarter last year. This print beat analysts’ estimates by 7.8%. Over the next 12 months, Wall Street expects Concentrix’s full-year EPS of $11.61 to grow 2.2%.

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.

Concentrix has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 5.9% over the last five years, slightly better than the broader business services sector.

Taking a step back, we can see that Concentrix’s margin dropped by 1.5 percentage points during that time. Continued declines could signal it is in the middle of an investment cycle.

Concentrix burned through $49.21 million of cash in Q1, equivalent to a negative 2.1% margin. The company’s cash burn slowed from $102.9 million of lost cash in the same quarter last year. These numbers deviate from its longer-term margin, indicating it is a seasonal business that must build up inventory during certain quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Concentrix historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 7.1%, somewhat low compared to the best business services companies that consistently pump out 25%+.

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, Concentrix’s ROIC averaged 2.3 percentage point decreases over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Concentrix reported $308 million of cash and $4.90 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.54 billion of EBITDA over the last 12 months, we view Concentrix’s 3.0× net-debt-to-EBITDA ratio as safe. We also see its $166.4 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing Concentrix beat analysts’ EPS and EBITDA expectations this quarter. We were also glad it slightly lifted its revenue guidance for next quarter. Overall, this quarter had some key positives. The stock traded up 8.2% to $49.45 immediately following the results.

Updated: May 21, 2025 at 11:51 PM EDT

When considering an investment in Concentrix, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

Concentrix has some positive attributes, but it isn’t one of our picks. To kick things off, its revenue growth was exceptional over the last five years. And while Concentrix’s relatively low ROIC suggests management has struggled to find compelling investment opportunities, its scale and strong customer awareness give it negotiating power.

Concentrix’s P/E ratio based on the next 12 months is 4.7x. While this valuation is fair, the upside isn’t great compared to the potential downside. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $64.33 on the company (compared to the current share price of $55.59).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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