ePlus has had an impressive run over the past six months as its shares have beaten the S&P 500 by 9.1%. The stock now trades at $84.87, marking a 14.1% gain. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now the time to buy ePlus, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is ePlus Not Exciting?
Despite the momentum, we're swiping left on ePlus for now. Here are three reasons we avoid PLUS and a stock we'd rather own.
1. Lackluster Revenue Growth
Long-term growth is the most important, but within business services, a stretched historical view may miss new innovations or demand cycles. ePlus’s recent performance shows its demand has slowed as its annualized revenue growth of 4.4% over the last two years was below its five-year trend. We’re wary when companies in the sector see decelerations in revenue growth, as it could signal changing consumer tastes aided by low switching costs. 
2. EPS Growth Has Stalled Over the Last Two Years
Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.
ePlus’s flat EPS over the last two years was worse than its 4.4% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
3. Mediocre Free Cash Flow Margin Limits Reinvestment Potential
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
ePlus has shown weak cash profitability relative to peers over the last five years, giving the company fewer opportunities to return capital to shareholders. Its free cash flow margin averaged 3.5%, below what we’d expect for a business services business.
Final Judgment
ePlus isn’t a terrible business, but it doesn’t pass our bar. With its shares topping the market in recent months, the stock trades at 16.5× forward P/E (or $84.87 per share). Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at the most dominant software business in the world.
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