Over the past six months, Exponent’s shares (currently trading at $69.95) have posted a disappointing 12.5% loss, well below the S&P 500’s 13% gain. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Exponent, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free for active Edge members.
Why Is Exponent Not Exciting?
Despite the more favorable entry price, we're swiping left on Exponent for now. Here are three reasons we avoid EXPO and a stock we'd rather own.
1. Lackluster Revenue Growth
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. Exponent’s recent performance shows its demand has slowed as its annualized revenue growth of 3.5% over the last two years was below its five-year trend. 
2. Fewer Distribution Channels Limit its Ceiling
With $531.1 million in revenue over the past 12 months, Exponent is a small player in the business services space, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and numerous distribution channels. On the bright side, it can grow faster because it has more room to expand.
3. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative 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. Over the last few years, Exponent’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
Exponent isn’t a terrible business, but it isn’t one of our picks. Following the recent decline, the stock trades at 31.9× forward P/E (or $69.95 per share). This multiple tells us a lot of good news is priced in - you can find more timely opportunities elsewhere. We’d suggest looking at one of our top digital advertising picks.
Stocks We Like More Than Exponent
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