Sallie Mae’s stock price has taken a beating over the past six months, shedding 20.1% of its value and falling to $21.71 per share. This might have investors contemplating their next move.
Is there a buying opportunity in Sallie Mae, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Sallie Mae Not Exciting?
Even with the cheaper entry price, we're swiping left on Sallie Mae for now. Here are two reasons we avoid SLM and a stock we'd rather own.
1. Long-Term Revenue Growth Flatter Than a Pancake
Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years.
Unfortunately, Sallie Mae struggled to consistently increase demand as its $1.96 billion of revenue for the trailing 12 months was close to its revenue five years ago. This was below our standards and is a sign of lacking business quality.
2. EPS Barely Growing
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sallie Mae’s EPS grew at 3.1% compounded annual growth rate over the last five years. On the bright side, this performance was better than its flat revenue and tells us management responded to softer demand by adapting its cost structure.
Final Judgment
Sallie Mae isn’t a terrible business, but it isn’t one of our picks. Following the recent decline, the stock trades at 8.1× forward P/E (or $21.71 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're pretty confident there are superior stocks to buy right now. We’d recommend looking at a safe-and-steady industrials business benefiting from an upgrade cycle.
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