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2 Reasons to Like BR and 1 to Stay Skeptical
BR Cover Image
2 Reasons to Like BR and 1 to Stay Skeptical

In This Article:

Even during a down period for the markets, Broadridge has gone against the grain, climbing to $235. Its shares have yielded a 8.4% return over the last six months, beating the S&P 500 by 16.5%. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is it too late to buy BR? Find out in our full research report, it’s free.

Why Does BR Stock Spark Debate?

Processing over $10 trillion in equity and fixed income trades daily and managing proxy voting for over 800 million equity positions, Broadridge Financial Solutions (NYSE:BR) provides technology-driven solutions that power investing, governance, and communications for banks, broker-dealers, asset managers, and public companies.

Two Things to Like:

1. Long-Term Revenue Growth Shows Strong Momentum

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Broadridge grew its sales at a solid 9% compounded annual growth rate. Its growth surpassed the average business services company and shows its offerings resonate with customers.

Broadridge Quarterly Revenue
Broadridge Quarterly Revenue

2. Outstanding Long-Term EPS Growth

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.

Broadridge’s EPS grew at a spectacular 12.8% compounded annual growth rate over the last five years, higher than its 9% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Broadridge Trailing 12-Month EPS (Non-GAAP)
Broadridge Trailing 12-Month EPS (Non-GAAP)

One Reason to be Careful:

Previous Growth Initiatives Haven’t Impressed

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Broadridge has shown solid business quality lately, it historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 14%, somewhat low compared to the best business services companies that consistently pump out 25%+.

Broadridge Trailing 12-Month Return On Invested Capital
Broadridge Trailing 12-Month Return On Invested Capital

Final Judgment

Broadridge has huge potential even though it has some open questions, and with its shares outperforming the market lately, the stock trades at 27.1× forward price-to-earnings (or $235 per share). Is now a good time to initiate a position? See for yourself in our in-depth research report, it’s free.