ePlus has been treading water for the past six months, holding steady at $86.95. The stock also fell short of the S&P 500’s 7.9% gain during that period.
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Why Is ePlus Not Exciting?
We’re sitting this one out for now. Here are three reasons you should be careful with PLUS, plus one stock we’d rather own.
1. Lackluster Revenue Growth
We at StockStory place the most emphasis on long-term growth, but within business services, a stretched historical view may miss recent innovations or disruptive industry trends. ePlus’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 4.8% over the last two years was well below its five-year trend. 
2. Recent EPS Growth Below Our Standards
While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.
ePlus’s weak 3.2% annual EPS growth over the last two years aligns with its revenue trend. On the bright side, this tells us its incremental sales were profitable.
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, ePlus’s margin dropped by 2.5 percentage points over the last five years. This along with its unexciting margin puts the company in a tough spot, and shareholders are likely hoping it can reverse course. If the trend continues, it could signal it’s becoming a more capital-intensive business. ePlus’s free cash flow margin for the trailing 12 months was negative 4.9%.
Final Judgment
ePlus isn’t a terrible business, but it isn’t one of our picks. With its shares underperforming the market lately, the stock trades at 16.4× forward P/E (or $86.95 per share). Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We’re pretty confident there are superior stocks to buy right now. We’d recommend looking at a dominant aerospace business that has perfected its M&A strategy.
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