What a fantastic six months it’s been for GEO Group. Shares of the company have skyrocketed 90.7%, hitting $30.62. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is there a buying opportunity in GEO Group, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is GEO Group Not Exciting?
Despite the momentum, we’re cautious about GEO Group. Here are three reasons why there are better opportunities than GEO, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, GEO Group grew its sales at a tepid 3.3% compounded annual growth rate. This fell short of our benchmark for the business services sector.
2. Shrinking Adjusted Operating Margin
Adjusted operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses — everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies because it excludes non-recurring expenses, interest on debt, and taxes.
Analyzing the trend in its profitability, GEO Group’s adjusted operating margin decreased by 4 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its adjusted operating margin for the trailing 12 months was 10.5%.
3. Free Cash Flow Margin Dropping
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.
As you can see below, GEO Group’s margin dropped by 11.1 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. GEO Group’s free cash flow margin for the trailing 12 months was negative 1.1%.
Final Judgment
GEO Group isn’t a terrible business, but it isn’t one of our picks. Following the recent rally, the stock trades at 24× forward P/E (or $30.62 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in – we think other companies feature superior fundamentals at the moment. We’d suggest looking at the most entrenched endpoint security platform on the market.
Stocks We Like More Than GEO Group
ONE MORE THING: Top 5 Growth Stocks. The biggest stock winners almost always had one thing in common before they ran. Revenue growing like crazy. Meta. CrowdStrike. Broadcom. Our AI flagged all three. They returned 315%, 314%, and 455%, respectively.
Find out which 5 stocks it’s flagging this month — FREE. Get Our Top 5 Growth Stocks for Free HERE.
Stocks that have made our list include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.
