Marcus & Millichap trades at $29.92 and has moved in lockstep with the market. Its shares have returned 11.5% over the last six months while the S&P 500 has gained 7.9%.
Is now the time to buy Marcus & Millichap, 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 Marcus & Millichap Will Underperform?
We’re sitting this one out for now. Here are three reasons why MMI doesn’t excite us, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance is one signal of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Marcus & Millichap grew its sales at a weak 1.9% compounded annual growth rate. This fell short of our benchmarks.
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.
Marcus & Millichap 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 6.4%, below what we’d expect for a consumer discretionary business.
3. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Unfortunately, Marcus & Millichap’s ROIC has decreased significantly over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
Final Judgment
We cheer for all companies serving everyday consumers, but in the case of Marcus & Millichap, we’ll be cheering from the sidelines. That said, the stock currently trades at 70.4× forward P/E (or $29.92 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better opportunities elsewhere. We’d suggest looking at one of our all-time favorite software stocks.
Stocks We Would Buy Instead of Marcus & Millichap
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