OneMain has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 5.2% to $56.01 per share while the index has gained 2.5%.
Is there a buying opportunity in OneMain, 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 Is OneMain Not Exciting?
We're swiping left on OneMain for now. Here are three reasons you should be careful with OMF and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.
Unfortunately, OneMain’s 4.9% annualized revenue growth over the last five years was tepid. This was below our standard for the financials sector.
2. EPS Barely Growing
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
OneMain’s EPS grew at a weak 1.8% compounded annual growth rate over the last five years, lower than its 4.9% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
3. High Debt Levels Increase Risk
OneMain reported $1.61 billion of cash and $22.75 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 $1.37 billion of EBITDA over the last 12 months, we view OneMain’s 15.4× 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
OneMain isn’t a terrible business, but it isn’t one of our picks. That said, the stock currently trades at 7.7× forward P/E (or $56.01 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at one of our top software and edge computing picks.
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