Cushman & Wakefield (CWK): Buy, Sell, or Hold Post Q3 Earnings?

Cushman & Wakefield’s 35.8% return over the past six months has outpaced the S&P 500 by 26.2%, and its stock price has climbed to $16.65 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

Is there a buying opportunity in Cushman & Wakefield, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Do We Think Cushman & Wakefield Will Underperform?

We’re glad investors have benefited from the price increase, but we're cautious about Cushman & Wakefield. Here are three reasons we avoid CWK 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. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Cushman & Wakefield’s 4.1% annualized revenue growth over the last five years was weak. This fell short of our benchmark for the consumer discretionary sector.

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.

Cushman & Wakefield has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 2.2%, lousy for a consumer discretionary business.

3. New Investments Fail to Bear Fruit as ROIC Declines

A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).

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. Over the last few years, Cushman & Wakefield’s ROIC averaged 1.8 percentage point decreases each year. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Final Judgment

Cushman & Wakefield doesn’t pass our quality test. With its shares outperforming the market lately, the stock trades at 12.2× forward P/E (or $16.65 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are superior stocks to buy right now. Let us point you toward the most entrenched endpoint security platform on the market.