Enova currently trades at $171.80 and has been a dream stock for shareholders. It’s returned 366% since May 2021, blowing past the S&P 500’s 75.6% gain. The company has also beaten the index over the past six months as its stock price is up 35.2% thanks to its solid quarterly results.
Is now the time to buy Enova, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Enova Not Exciting?
We’re glad investors have benefited from the price increase, but we're swiping left on Enova for now. Here are two reasons we avoid ENVA and a stock we'd rather own.
1. EPS Barely Growing
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.
Enova’s EPS grew at an unimpressive 8.5% compounded annual growth rate over the last five years, lower than its 27.3% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
2. High Debt Levels Increase Risk
Enova reported $421.4 million of cash and $4.86 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 $858.4 million of EBITDA over the last 12 months, we view Enova’s 5.2× 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
Enova isn’t a terrible business, but it isn’t one of our picks. With its shares outperforming the market lately, the stock trades at 10.1× forward P/E (or $171.80 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at a safe-and-steady industrials business benefiting from an upgrade cycle.
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