What a brutal six months it’s been for H&R Block. The stock has dropped 20% and now trades at $43.91, rattling many shareholders. This might have investors contemplating their next move.
Is now the time to buy H&R Block, 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 for active Edge members.
Why Do We Think H&R Block Will Underperform?
Despite the more favorable entry price, we're swiping left on H&R Block for now. Here are three reasons we avoid HRB and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Regrettably, H&R Block’s sales grew at a weak 5.3% compounded annual growth rate over the last five years. This fell short of our benchmark for the consumer discretionary sector. We note H&R Block is a seasonal business because it generates most of its revenue during tax season, so the charts in our report will look a bit lumpy.
2. Mediocre Free Cash Flow Margin Limits Reinvestment Potential
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
H&R Block has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 16.7%, lousy for a consumer discretionary business.
3. New Investments Aren’t Moving the Needle
A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared 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. Uneventfully, H&R Block’s ROIC has stayed the same over the last few years. Given the company’s underwhelming financial performance in other areas, we’d like to see its returns improve before recommending the stock.
Final Judgment
We cheer for all companies serving everyday consumers, but in the case of H&R Block, we’ll be cheering from the sidelines. Following the recent decline, the stock trades at 8.9× forward P/E (or $43.91 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are superior stocks to buy right now. We’d suggest looking at a dominant Aerospace business that has perfected its M&A strategy.
Stocks We Like More Than H&R Block
The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
Stocks that have made our list include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.