SP Plus Corp (SP): A Deep Dive into Its Performance Potential
Long-established in the Business Services industry, SP Plus Corp (NASDAQ:SP) has enjoyed a stellar reputation. It has recently witnessed a daily gain of 46.7%, juxtaposed with a three-month change of 30.59%. However, fresh insights from the GF Score hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of SP Plus Corp.
Understanding the GF Score
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
Financial strength rank: 5/10
Profitability rank: 6/10
Growth rank: 2/10
GF Value rank: 3/10
Momentum rank: 10/10
Based on the above method, GuruFocus assigned SP Plus Corp the GF Score of 67 out of 100, which signals poor future outperformance potential.
SP Plus Corp: A Snapshot of the Business
SP Plus Corp, with a market cap of $1.02 billion, provides parking management, ground transportation, and other ancillary services to commercial, institutional, and municipal clients in urban markets and airports across the United States, Canada, and Puerto Rico. Its services include a comprehensive set of on-site parking management and ground transportation services. In addition, the company also provides a range of ancillary services such as airport and municipal shuttle operations, valet services, taxi and livery dispatch services, and municipal meter revenue collection and enforcement services. Its reportable segments are Commercial and Aviation, with the majority of its revenue generated from the Commercial segment.
Financial Strength Analysis
SP Plus Corp's financial strength indicators present some concerning insights about the company's balance sheet health. The company's interest coverage ratio of 3.48 positions it worse than 80.28% of 796 companies in the Business Services industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. The company's Altman Z-Score is just 2.19, which is below the safe threshold of 2.99. Although this does not imply immediate danger of financial distress, the stock may face some financial struggles if the Altman Z-score drops below 1.81.
Additionally, the company's low cash-to-debt ratio at 0.04 indicates a struggle in handling existing debt levels. The company's debt-to-equity ratio is 2.4, which is worse than 89.79% of 891 companies in the Business Services industry. A high debt-to-equity ratio suggests over-reliance on borrowing and vulnerability to market fluctuations. Additionally, the company's debt-to-Ebitda ratio is 5.01, which is above Joel Tillinghast's warning level of 4 and is worse than 80.73% of 794 companies in the Business Services industry. Tillinghast said in his book Big Money Think's Small: Biases, Blind Spots, and Smarter Investing that a high debt-to-Ebitda ratio can be a red flag unless tangible assets cover the debt.
Growth Prospects
A lack of significant growth is another area where SP Plus Corp seems to falter, as evidenced by the company's low Growth rank. The company's revenue has declined by -0.4 per year over the past three years, which underperforms worse than 64.37% of 974 companies in the Business Services industry. Stagnating revenues may pose concerns in a fast-evolving market. Lastly, SP Plus Corp predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.
Conclusion
Given the company's financial strength, profitability, and growth metrics, the GF Score highlights the firm's unparalleled position for potential underperformance. While SP Plus Corp has shown impressive momentum, its financial strength and growth prospects raise concerns about its ability to sustain this performance. Investors should consider these factors when making investment decisions.
GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen
This article first appeared on GuruFocus.
