Sallie Mae’s 36.2% return over the past six months has outpaced the S&P 500 by 22.2%, and its stock price has climbed to $27.21 per share. This performance may have investors wondering how to approach the situation.
Is now the time to buy Sallie Mae, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Do We Think Sallie Mae Will Underperform?
Despite the momentum, we don’t have much confidence in Sallie Mae. Here are two reasons we avoid SLM, 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. Any business can have short-term success, but a top-tier one grows for years.
Unfortunately, Sallie Mae struggled to consistently increase demand as its $1.96 billion of revenue for the trailing 12 months was close to its revenue five years ago. This wasn’t a great result and is a sign of poor business quality.
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 Sallie Mae, its EPS declined by 1.5% annually over the last five years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences.If the tide turns unexpectedly, Sallie Mae’s low margin of safety could leave its stock price susceptible to large downswings.
Final Judgment
Sallie Mae doesn’t pass our quality test. With its shares outperforming the market lately, the stock trades at 8.6× forward P/E (or $27.21 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are superior stocks to buy right now. We’d suggest looking at a dominant aerospace business that has perfected its M&A strategy.
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