CBRE currently trades at $118.95 per share and has shown little upside over the past six months, posting a small loss of 4.4%.
Is now the time to buy CBRE, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
We're sitting this one out for now. Here are three reasons why you should be careful with CBRE and a stock we'd rather own.
Why Do We Think CBRE Will Underperform?
Established in 1906, CBRE (NYSE: CBRE) is one of the largest commercial real estate services firms in the world.
1. Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, CBRE’s 8.4% annualized revenue growth over the last five years was sluggish. This was below our standard for the consumer discretionary sector. 
2. Weak Operating Margin Could Cause Trouble
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
CBRE’s operating margin might fluctuated slightly over the last 12 months but has generally stayed the same, averaging 3.7% over the last two years. This profitability was lousy for a consumer discretionary business and caused by its suboptimal cost structure.
3. Mediocre Free Cash Flow Margin Limits Reinvestment Potential
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.
CBRE has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 2.3%, lousy for a consumer discretionary business.
Final Judgment
We see the value of companies helping consumers, but in the case of CBRE, we’re out. That said, the stock currently trades at 19.8× forward price-to-earnings (or $118.95 per share). This valuation tells us a lot of optimism is priced in - we think there are better stocks to buy right now. We’d suggest looking at an all-weather company that owns household favorite Taco Bell.
Stocks We Would Buy Instead of CBRE
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