Cadre has had an impressive run over the past six months as its shares have beaten the S&P 500 by 9.8%. The stock now trades at $43.11, marking a 23.1% gain. This performance may have investors wondering how to approach the situation.
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Why Is Cadre Not Exciting?
Despite the momentum, we're swiping left on Cadre for now. Here are three reasons why CDRE doesn't excite us and a stock we'd rather own.
1. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Cadre’s revenue to rise by 6.7%, a deceleration versus its 8.3% annualized growth for the past five years. This projection is underwhelming and suggests its products and services will see some demand headwinds.
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.
Cadre’s full-year EPS grew at a weak 3.5% compounded annual growth rate over the last four years, worse than the broader industrials sector.
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, Cadre’s ROIC has unfortunately decreased. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
Cadre isn’t a terrible business, but it isn’t one of our picks. With its shares beating the market recently, the stock trades at 30× forward P/E (or $43.11 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are superior stocks to buy right now. Let us point you toward one of our top digital advertising picks.
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