Western Union’s stock price has taken a beating over the past six months, shedding 30% of its value and falling to $5.92 per share. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.
Is there a buying opportunity in Western Union, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Do We Think Western Union Will Underperform?
Despite the more favorable entry price, we’re sitting this one out for now. Here are two reasons why there are better opportunities than WU, plus one stock we’d rather own.
1. Revenue Spiraling Downwards
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years.
Western Union’s demand was weak over the last five years as its revenue fell at a 4.3% annual rate. This wasn’t a great result and signals it’s a low quality business.
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 5.3% and 4.3% 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
Western Union doesn’t pass our quality test. After the recent drawdown, the stock trades at 4.1× forward P/E (or $5.92 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere. We’d recommend looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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