Service International currently trades at $80.76 per share and has shown little upside over the past six months, posting a middling return of 2.4%.
Is now the time to buy Service International, 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 Is Service International Not Exciting?
We don't have much confidence in Service International. Here are three reasons why SCI doesn't excite us and a stock we'd rather own.
1. Inability to Grow Funeral Services Performed Points to Weak Demand
Revenue growth can be broken down into changes in price and volume (for companies like Service International, our preferred volume metric is funeral services performed). While both are important, the latter is the most critical to analyze because prices have a ceiling.
Over the last two years, Service International failed to grow its funeral services performed, which came in at 87,014 in the latest quarter. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests Service International might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability. 
2. 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 Service International’s revenue to rise by 3%, close to its 5.5% annualized growth for the past five years. This projection is underwhelming and implies its newer products and services will not accelerate its top-line performance yet.
3. New Investments Fail to Bear Fruit as ROIC Declines
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. On average, Service International’s ROIC decreased by 4.7 percentage points annually over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
Final Judgment
Service International isn’t a terrible business, but it isn’t one of our picks. That said, the stock currently trades at 20.4× forward P/E (or $80.76 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 recommend looking at the most entrenched endpoint security platform on the market.
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