Over the last six months, Marcus & Millichap shares have sunk to $35.58, producing a disappointing 10.2% loss - worse than the S&P 500’s 1.4% drop. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Marcus & Millichap, 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.
Even though the stock has become cheaper, we're swiping left on Marcus & Millichap for now. Here are three reasons why MMI doesn't excite us and a stock we'd rather own.
Why Do We Think Marcus & Millichap Will Underperform?
Founded in 1971, Marcus & Millichap (NYSE: MMI) specializes in commercial real estate investment sales, financing, research, and advisory services.
1. Revenue Spiraling Downwards
A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Marcus & Millichap’s demand was weak over the last five years as its sales fell at a 2.9% annual rate. This wasn’t a great result and is a sign of poor business quality. 
2. Cash Burn Ignites Concerns
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Over the last two years, Marcus & Millichap’s demanding reinvestments to stay relevant have drained its resources, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 11.2%, meaning it lit $11.17 of cash on fire for every $100 in revenue.
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. Unfortunately, Marcus & Millichap’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
Marcus & Millichap falls short of our quality standards. After the recent drawdown, the stock trades at 440.7× forward price-to-earnings (or $35.58 per share). This valuation tells us a lot of optimism is priced in - we think there are better stocks to buy right now. We’d suggest looking at one of our top digital advertising picks.
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