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Over the last six months, Maximus’s shares have sunk to $75.01, producing a disappointing 5.3% loss while the S&P 500 was flat. This might have investors contemplating their next move.
Is now the time to buy Maximus, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Maximus Not Exciting?
Even with the cheaper entry price, we're cautious about Maximus. Here are three reasons why there are better opportunities than MMS and a stock we'd rather own.
1. Projected Revenue Growth Shows Limited Upside
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 Maximus’s revenue to stall, a deceleration versus its 6.5% annualized growth for the past two years. This projection is underwhelming and suggests its products and services will see some demand headwinds.
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, Maximus’s margin dropped by 5.9 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Maximus’s free cash flow margin for the trailing 12 months was 4.1%.
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, Maximus’s ROIC decreased by 2.9 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
Maximus’s business quality ultimately falls short of our standards. After the recent drawdown, the stock trades at 11.7× forward P/E (or $75.01 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're fairly confident there are better stocks to buy right now. Let us point you toward one of our all-time favorite software stocks.
Stocks We Like More Than Maximus
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