CoreCivic has been on fire lately. In the past six months alone, the company’s stock price has rocketed 67.5%, reaching $31.95 per share. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now still a good time to buy CXW? Or are investors being too optimistic? Find out in our full research report, it’s free.
Why Does CoreCivic Spark Debate?
Originally founded in 1983 as the first private prison company in the United States, CoreCivic (NYSE: CXW) operates correctional facilities, detention centers, and residential reentry programs for government agencies across the United States.
Two Positive Attributes:
1. Long-Term Revenue Growth Shows Momentum
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, CoreCivic grew its sales at a decent 5.9% compounded annual growth rate. Its growth was slightly above the average business services company and shows its offerings resonate with customers.
2. EPS Increasing Steadily
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
CoreCivic’s EPS grew at 9.7% compounded annual growth rate over the last five years, higher than its 5.9% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
One Reason to Be Careful:
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, CoreCivic’s margin dropped by 7.8 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. CoreCivic’s free cash flow margin for the trailing 12 months was 2.5%.
Final Judgment
CoreCivic’s positive characteristics outweigh the negatives, and after the recent rally, the stock trades at 15.2× forward P/E (or $31.95 per share). Is now the time to initiate a position? See for yourself in our full research report, it’s free.
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