Over the past six months, Western Union’s shares (currently trading at $8) have posted a disappointing 17.4% loss, well below the S&P 500’s 7.7% gain. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.

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Why Do We Think Western Union Will Underperform?

Even with the cheaper entry price, we’re cautious about Western Union. Here are two reasons why WU doesn’t excite us, plus one stock we’d rather own.

1. Revenue Spiraling Downwards

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.

Western Union’s demand was weak over the last five years as its revenue fell at a 2.8% annual rate. This wasn’t a great result and is a sign of poor business quality.

2. EPS Trending Down

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Sadly for Western Union, its EPS and revenue declined by 3.2% and 2.8% annually over the last five years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, Western Union’s low margin of safety could leave its stock price susceptible to large downswings.

Final Judgment

We see the value of companies driving economic growth, but in the case of Western Union, we’re out. Following the recent decline, the stock trades at 4.2× forward P/E (or $8 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are superior stocks to buy right now. Let us point you toward one of our top software and edge computing picks.

Stocks We Would Buy Instead of Western Union

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