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In a sliding market, SS&C has defied the odds, trading up to $79.87 per share. Its 6.7% gain since November 2024 has outpaced the S&P 500’s 2.4% drop. This performance may have investors wondering how to approach the situation.
Is now the time to buy SS&C, 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 SS&C Not Exciting?
We’re happy investors have made money, but we don't have much confidence in SS&C. Here are three reasons why you should be careful with SSNC and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, SS&C’s sales grew at a mediocre 4.9% compounded annual growth rate over the last five years. This was below our standard for the business services sector.
2. Free Cash Flow Margin Dropping
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, SS&C’s margin dropped by 3 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 20.5%.
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? Enter ROIC, a metric showing how much operating profit a company generates relative 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 6.3%, somewhat low compared to the best business services companies that consistently pump out 25%+.
Final Judgment
SS&C isn’t a terrible business, but it isn’t one of our picks. With its shares beating the market recently, the stock trades at 13.2× forward P/E (or $79.87 per share). Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere. We’d recommend looking at a safe-and-steady industrials business benefiting from an upgrade cycle.