Over the past six months, JLL’s stock price fell to $293.37. Shareholders have lost 7.9% of their capital, which is disappointing considering the S&P 500 has climbed by 10.8%. This may have investors wondering how to approach the situation.
Is now the time to buy JLL, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think JLL Will Underperform?
Despite the more favorable entry price, we don’t have much confidence in JLL. Here are three reasons you should be careful with JLL and a stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, JLL grew its sales at a 10.1% annual rate. Although this growth is acceptable on an absolute basis, it fell short of our standards for the consumer discretionary sector, which enjoys a number of secular tailwinds.
2. 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.
JLL has shown poor cash profitability relative to peers over the last two years, giving the company fewer opportunities to return capital to shareholders. Its free cash flow margin averaged 2.9%, below what we’d expect for a consumer discretionary business.
3. New Investments Aren’t Moving the Needle
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. Unfortunately, JLL’s ROIC has stayed the same over the last few years. If the company wants to become an investable business, it must improve its returns by generating more profitable growth.
Final Judgment
We cheer for all companies serving everyday consumers, but in the case of JLL, we’ll be cheering from the sidelines. After the recent drawdown, the stock trades at 12.5× forward P/E (or $293.37 per share). This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are more exciting stocks to buy at the moment. Let us point you toward an all-weather company that owns household favorite Taco Bell.
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