PROG’s 18.2% return over the past six months has outpaced the S&P 500 by 11.3%, and its stock price has climbed to $36.22 per share. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is there a buying opportunity in PROG, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Do We Think PROG Will Underperform?
We’re glad investors have benefited from the price increase, but we’re sitting this one out for now. Here are three reasons why there are better opportunities than PRG, plus one stock we’d rather own.
1. Long-Term Revenue Growth Flatter Than a Pancake
A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.
Unfortunately, PROG struggled to consistently increase demand as its $2.52 billion of revenue for the trailing 12 months was close to its revenue five years ago. This wasn’t a great result and signals it’s a low quality business.
2. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for PROG, its EPS declined by 5.4% annually over the last five years while its revenue was flat. This tells us the company struggled because its fixed cost base made it difficult to adjust to choppy demand.
3. Declining TBVPS Reflects Erosion of Asset Value
We consider tangible book value per share (TBVPS) an important metric for financial firms. TBVPS represents the real, liquid net worth per share of a company, excluding intangible assets that have debatable value upon liquidation.
Disappointingly for investors, PROG’s TBVPS continued freefalling over the past two years as TBVPS declined at a -88.1% annual clip (from $4.70 to $0.07 per share).
Final Judgment
We see the value of companies driving economic growth, but in the case of PROG, we’re out. With its shares outperforming the market lately, the stock trades at 8.3× forward P/E (or $36.22 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere. We’d suggest looking at an all-weather company that owns household favorite Taco Bell.
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