OneMain trades at $63.05 per share and has stayed right on track with the overall market, gaining 14.8% over the last six months. At the same time, the S&P 500 has returned 12%.
Is now the time to buy OneMain, 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 Is OneMain Not Exciting?
We’re passing on OneMain for now. Here are three reasons you should be careful with OMF, 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. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.
Regrettably, OneMain’s revenue grew at a tepid 5.5% compounded annual growth rate over the last five years. This fell short of our benchmark for the financials sector.
2. EPS Trending Down
Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable — for example, revenue could be inflated through excessive spending on advertising and promotions.
Sadly for OneMain, its EPS declined by 9.3% annually over the last five years while its revenue grew by 5.5%. This tells us the company became less profitable on a per-share basis as it expanded.
3. High Debt Levels Increase Risk
OneMain reported $1.31 billion of cash and $22.77 billion of debt on its balance sheet in the most recent quarter.
As investors in high-quality companies, we primarily focus on whether a company’s profits can support its debt.
With $1.36 billion of EBITDA over the last 12 months, we view OneMain’s 15.7× net-debt-to-EBITDA ratio as inadequate. The company’s lacking profits relative to its borrowings give it little breathing room, raising red flags.
Final Judgment
OneMain isn’t a terrible business, but it doesn’t pass our bar. That said, the stock currently trades at 7.8× forward P/E (or $63.05 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We’re fairly confident there are better stocks to buy right now. We’d recommend looking at the Amazon and PayPal of Latin America.
Stocks We Like More Than OneMain
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