Aramark has been treading water for the past six months, recording a small loss of 0.9% while holding steady at $38.98. The stock also fell short of the S&P 500’s 6% gain during that period.
Is now the time to buy Aramark, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Aramark Not Exciting?
We're cautious about Aramark. Here are three reasons why ARMK doesn't excite us and a stock we'd rather own.
1. Revenue Growth Flatlining
We at StockStory place the most emphasis on long-term growth, but within business services, a stretched historical view may miss recent innovations or disruptive industry trends. Aramark’s recent performance shows its demand has slowed significantly as its revenue was flat over the last two years. 
2. EPS Took a Dip Over the Last Two Years
Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.
Sadly for Aramark, its EPS declined by 29.5% annually over the last two years while its revenue was flat. This tells us the company struggled to adjust to choppy demand.
3. Mediocre Free Cash Flow Margin Limits Reinvestment Potential
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.
Aramark has shown poor cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 1.2%, lousy for a business services business.
Final Judgment
Aramark’s business quality ultimately falls short of our standards. With its shares lagging the market recently, the stock trades at 16.9× forward P/E (or $38.98 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now. Let us point you toward one of our top software and edge computing picks.
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