SS&C has been treading water for the past six months, holding steady at $86.80. The stock also fell short of the S&P 500’s 5.3% gain during that period.
Is there a buying opportunity in SS&C, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is SS&C Not Exciting?
We don't have much confidence in SS&C. Here are three reasons why we avoid SSNC and a stock we'd rather own.
1. EPS Barely Growing
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
SS&C’s unimpressive 7.1% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.
2. Free Cash Flow Margin Dropping
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.
As you can see below, SS&C’s margin dropped by 2.5 percentage points over the last five years. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. If the longer-term trend returns, it could signal increasing investment needs and capital intensity. SS&C’s free cash flow margin for the trailing 12 months was 19.7%.
3. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
SS&C historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 6.4%, somewhat low compared to the best business services companies that consistently pump out 25%+.
Final Judgment
SS&C’s business quality ultimately falls short of our standards. With its shares underperforming the market lately, the stock trades at 14× forward P/E (or $86.80 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at one of our all-time favorite software stocks.
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