E.W. Scripps has been on fire lately. In the past six months alone, the company’s stock price has rocketed 83.3%, reaching $2.97 per share. This run-up might have investors contemplating their next move.

Is there a buying opportunity in E.W. Scripps, 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 Do We Think E.W. Scripps Will Underperform?

We’re glad investors have benefited from the price increase, but we're swiping left on E.W. Scripps for now. Here are three reasons we avoid SSP and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, E.W. Scripps’s sales grew at a tepid 9.8% compounded annual growth rate over the last five years. This was below our standard for the consumer discretionary sector.

2. Previous Growth Initiatives Haven’t Impressed

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

E.W. Scripps historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 3.5%, lower than the typical cost of capital (how much it costs to raise money) for consumer discretionary companies.

3. New Investments Fail to Bear Fruit as ROIC Declines

A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared 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. On average, E.W. Scripps’s ROIC decreased by 4.5 percentage points annually over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Final Judgment

E.W. Scripps falls short of our quality standards. After the recent rally, the stock trades at 0.8× forward EV-to-EBITDA (or $2.97 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are better stocks to buy right now. We’d suggest looking at one of Charlie Munger’s all-time favorite businesses.

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