What a time it’s been for Aramark. In the past six months alone, the company’s stock price has increased by a massive 51.1%, setting a new 52-week high of $58.30 per share. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Following the strength, is ARMK a buy right now? Or is the market overestimating its value? Find out in our full research report, it’s free.
Why Does ARMK Stock Spark Debate?
From serving hot dogs at major league stadiums to managing college dining halls that feed thousands daily, Aramark (NYSE: ARMK) provides food services and facilities management to schools, healthcare facilities, businesses, sports venues, and correctional institutions across 16 countries.
Two Things to Like:
1. Skyrocketing Revenue Shows Strong Momentum
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. Thankfully, Aramark’s 13.3% annualized revenue growth over the last five years was exceptional. Its growth beat the average business services company and shows its offerings resonate with customers.
2. Outstanding Long-Term EPS Growth
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Aramark’s full-year EPS flipped from negative to positive over the last five years. This is a good sign and shows it’s at an inflection point.
One Reason to Be Careful:
Mediocre Free Cash Flow Margin Limits Reinvestment Potential
Free cash flow isn’t a prominently featured metric in company financials and earnings releases, but we think it’s telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Aramark has shown poor cash profitability relative to peers over the last five years, giving the company fewer opportunities to return capital to shareholders. Its free cash flow margin averaged 1.2%, below what we’d expect for a business services business.
Final Judgment
Aramark has huge potential even though it has some open questions, and with the recent rally, the stock trades at 23.6× forward P/E (or $58.30 per share). Is now the time to buy despite the apparent froth? See for yourself in our comprehensive research report, it’s free.
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