Getty Images’s stock price has taken a beating over the past six months, shedding 47.2% of its value and falling to $1.02 per share. This might have investors contemplating their next move.
Is now the time to buy Getty Images, 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 Getty Images Not Exciting?
Even with the cheaper entry price, we're cautious about Getty Images. Here are three reasons why GETY doesn't excite us and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Getty Images grew its sales at a sluggish 2.7% compounded annual growth rate. This was below our standards.
2. 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, Getty Images’s margin dropped by 11.2 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Getty Images’s free cash flow margin for the trailing 12 months was 2.4%.
3. New Investments Fail to Bear Fruit as ROIC Declines
We like to invest in businesses with high returns, but the trend in a company’s ROIC can also be an early indicator of future business quality.
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, Getty Images’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
Getty Images’s business quality ultimately falls short of our standards. Following the recent decline, the stock trades at 15× forward P/E (or $1.02 per share). Beauty is in the eye of the beholder, but our analysis shows the upside isn’t great compared to the potential downside. We're fairly confident there are better stocks to buy right now. We’d recommend looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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