Over the past six months, Wiley’s shares (currently trading at $44.86) have posted a disappointing 15.6% loss while the S&P 500 was down 5.8%. This may have investors wondering how to approach the situation.
Is now the time to buy Wiley, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Do We Think Wiley Will Underperform?
Despite the more favorable entry price, we're sitting this one out for now. Here are three reasons why you should be careful with WLY and a stock we'd rather own.
1. Revenue Spiraling Downwards
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Wiley’s demand was weak and its revenue declined by 1.6% per year. This wasn’t a great result and signals it’s a low quality business. 
2. EPS Barely Growing
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Wiley’s EPS grew at an unimpressive 5.6% compounded annual growth rate over the last five years. On the bright side, this performance was better than its 1.6% annualized revenue declines and tells us management adapted its cost structure in response to a challenging demand environment.
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, Wiley’s margin dropped by 4.3 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Wiley’s free cash flow margin for the trailing 12 months was 10.2%.
Final Judgment
Wiley doesn’t pass our quality test. Following the recent decline, the stock trades at 18.6× forward EV-to-EBITDA (or $44.86 per share). This valuation tells us a lot of optimism is priced in - you can find better investment opportunities elsewhere. We’d recommend looking at one of our top digital advertising picks.
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