Over the past six months, Verra Mobility’s shares (currently trading at $22.44) have posted a disappointing 10.9% loss, well below the S&P 500’s 12.9% gain. This may have investors wondering how to approach the situation.
Following the pullback, is now the time to buy VRRM? Find out in our full research report, it’s free for active Edge members.
Why Does VRRM Stock Spark Debate?
Aiming to wrap technology and data around a historically manual and paper-based industry, Verra Mobility (NYSE:VRRM) is a leading provider of smart mobility technology to address tolls and violations, title and registration services, as well as safety and traffic enforcement.
Two Positive Attributes:
1. Skyrocketing Revenue Shows Strong Momentum
A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Thankfully, Verra Mobility’s 18.4% annualized revenue growth over the last five years was incredible. Its growth surpassed the average industrials company and shows its offerings resonate with customers.
2. Outstanding Long-Term EPS Growth
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.
Verra Mobility’s EPS grew at an astounding 20.4% compounded annual growth rate over the last five years, higher than its 18.4% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
One Reason to be Careful:
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, Verra Mobility’s margin dropped by 6.7 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Verra Mobility’s free cash flow margin for the trailing 12 months was 16.2%.
Final Judgment
Verra Mobility’s merits more than compensate for its flaws. With the recent decline, the stock trades at 16.9× forward P/E (or $22.44 per share). Is now the right time to buy? See for yourself in our in-depth research report, it’s free for active Edge members.
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