Newmark currently trades at $17.28 and has been a dream stock for shareholders. It’s returned 313% since August 2020, blowing past the S&P 500’s 88% gain. The company has also beaten the index over the past six months as its stock price is up 22% thanks to its solid quarterly results.
Is now the time to buy Newmark, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Do We Think Newmark Will Underperform?
We’re glad investors have benefited from the price increase, but we're swiping left on Newmark for now. Here are three reasons why we avoid NMRK 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. Over the last five years, Newmark grew its sales at a sluggish 7.4% compounded annual growth rate. This was below our standard for the consumer discretionary sector.
2. Breakeven Free Cash Flow 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.
Newmark broke even from a free cash flow perspective over the last two years, giving the company limited opportunities to return capital to shareholders.
3. 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).
Newmark historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 2.7%, lower than the typical cost of capital (how much it costs to raise money) for consumer discretionary companies.
Final Judgment
We cheer for all companies serving everyday consumers, but in the case of Newmark, we’ll be cheering from the sidelines. With its shares outperforming the market lately, the stock trades at 11× forward P/E (or $17.28 per share). This valuation multiple is fair, but we don’t have much confidence in the company. There are better investments elsewhere. We’d suggest looking at the most dominant software business in the world.
Stocks We Would Buy Instead of Newmark
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