Over the past six months, Amdocs’s shares (currently trading at $69.75) have posted a disappointing 19.8% loss, well below the S&P 500’s 7.6% gain. This might have investors contemplating their next move.

Is there a buying opportunity in Amdocs, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Why Is Amdocs Not Exciting?

Even though the stock has become cheaper, we're cautious about Amdocs. Here are three reasons we avoid DOX and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Amdocs grew its sales at a sluggish 1.7% compounded annual growth rate. This fell short of our benchmarks.

2. Projected Revenue Growth Is Slim

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect Amdocs’s revenue to rise by 3.2%. Although this projection indicates its newer products and services will catalyze better top-line performance, it is still below the sector average.

3. Recent EPS Growth Below Our Standards

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.

Amdocs’s EPS grew at an unimpressive 8.9% compounded annual growth rate over the last two years. On the bright side, this performance was higher than its 3.8% annualized revenue declines and tells us management adapted its cost structure in response to a challenging demand environment.

Final Judgment

Amdocs’s business quality ultimately falls short of our standards. Following the recent decline, the stock trades at 9.3× forward P/E (or $69.75 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're fairly confident there are better investments elsewhere. We’d suggest looking at an all-weather company that owns household favorite Taco Bell.

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