Over the past six months, CTS’s shares (currently trading at $43.38) have posted a disappointing 19.8% loss while the S&P 500 was down 1%. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Is there a buying opportunity in CTS, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Do We Think CTS Will Underperform?
Despite the more favorable entry price, we're cautious about CTS. Here are three reasons why we avoid CTS and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, CTS’s 2.6% annualized revenue growth over the last five years was sluggish. This was below our standards. 
2. Fewer Distribution Channels Limit its Ceiling
With $515.8 million in revenue over the past 12 months, CTS is a small player in the business services space, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and numerous distribution channels.
3. EPS Took a Dip Over the Last Two Years
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.
Sadly for CTS, its EPS and revenue declined by 5.8% and 6.1% annually over the last two 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, CTS’s low margin of safety could leave its stock price susceptible to large downswings.
Final Judgment
CTS doesn’t pass our quality test. After the recent drawdown, the stock trades at 20× forward P/E (or $43.38 per share). This valuation tells us a lot of optimism is priced in - we think there are better stocks to buy right now. Let us point you toward the most dominant software business in the world.
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