Bread Financial has had an impressive run over the past six months as its shares have beaten the S&P 500 by 23%. The stock now trades at $77.17, marking a 31.5% gain. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now the time to buy Bread Financial, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Do We Think Bread Financial Will Underperform?
We’re glad investors have benefited from the price increase, but we're swiping left on Bread Financial for now. Here are two reasons there are better opportunities than BFH and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.
Unfortunately, Bread Financial’s 3.1% annualized revenue growth over the last five years was sluggish. This was below our standard for the financials sector.
2. EPS Barely Growing
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.
Bread Financial’s EPS grew at an unimpressive 5.3% compounded annual growth rate over the last five years. On the bright side, this performance was better than its 3.1% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.
Final Judgment
Bread Financial doesn’t pass our quality test. With its shares topping the market in recent months, the stock trades at 7.6× forward P/E (or $77.17 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere. We’d recommend looking at our favorite semiconductor picks and shovels play.
Stocks We Would Buy Instead of Bread Financial
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