TransUnion currently trades at $82.40 per share and has shown little upside over the past six months, posting a middling return of 4%. The stock also fell short of the S&P 500’s 12% gain during that period.
Does this present a buying opportunity for TRU? Or is its underperformance reflective of its story and business quality? Find out in our full research report, it’s free.
Why Does TRU Stock Spark Debate?
One of the three major credit bureaus in the United States alongside Equifax and Experian, TransUnion (NYSE:TRU) is a global information and insights company that provides credit reports, fraud prevention tools, and data analytics to help businesses make decisions and consumers manage their financial health.
Two Positive Attributes:
1. Skyrocketing Revenue Shows Strong Momentum
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. Luckily, TransUnion’s sales grew at an excellent 11.7% compounded annual growth rate over the last five years. Its growth beat the average business services company and shows its offerings resonate with customers.
2. Increasing Free Cash Flow Margin Juices Financials
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, TransUnion’s margin expanded by 14.5 percentage points over the last five years. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability fell. TransUnion’s free cash flow margin for the trailing 12 months was 16.1%.
One Reason to Be Careful:
Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Although TransUnion has shown solid fundamentals lately, it historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 5.6%, somewhat low compared to the best business services companies that consistently pump out 25%+.
Final Judgment
TransUnion has huge potential even though it has some open questions. With its shares underperforming the market lately, the stock trades at 16.2× forward P/E (or $82.40 per share). Is now the right time to buy? See for yourself in our full research report, it’s free.
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