The past six months have been a windfall for Benchmark’s shareholders. The company’s stock price has jumped 60.9%, hitting $79.65 per share. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is there a buying opportunity in Benchmark, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Benchmark Not Exciting?
We’re happy investors have made money, but we don’t have much confidence in Benchmark. Here are three reasons you should be careful with BHE, plus one stock we’d rather own.
1. Revenue Tumbling Downwards
We at StockStory place the most emphasis on long-term growth, but within business services, a stretched historical view may miss recent innovations or disruptive industry trends. Benchmark’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 2.1% over the last two years. 
2. Breakeven Free Cash Flow Limits Reinvestment Potential
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.
Benchmark broke even from a free cash flow perspective over the last five years, giving the company limited opportunities to return capital to shareholders.
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? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
Benchmark historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 7.3%, somewhat low compared to the best business services companies that consistently pump out 25%+.
Final Judgment
Benchmark isn’t a terrible business, but it doesn’t pass our quality test. After the recent rally, the stock trades at 28.8× forward P/E (or $79.65 per share). This multiple tells us a lot of good news is priced in - we think there are better stocks to buy right now. We’d suggest looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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