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ABM Industries (ABM) Stock Down 32% in a Year: Here's Why

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Shares of ABM Industries Inc. (ABM - Free Report) have lost 33% against the industry’s growth of 17.4% in a year.

 

Moreover, the facility management provider’s shares tumbled to a 52-week low of $28.54 during the trading session on May 29. The figure recovered marginally to close at $28.82, down 1.3%.

Reasons Behind the Plunge

ABM Industries operates in a highly competitive industry where the barriers to entry are very low. This makes it difficult for the company to maintain strong and long-term relationships with clients. In order to win new clients and retain the existing ones, the company has to remain technologically updated to meet varying and rapidly changing client demands.

This increases operating expenses of the company, thereby reducing margins. In 2017, operating expenses rose 14% to $1.34 billion. As of Jan 31, 2018, the figure was up 19.6% to 1.43 billion. Rising operating costs are a major headwind for the company’s growth.

The company’s business outside the United States, especially in the United Kingdom, remains susceptible to the outcome of Brexit. With the exit of U.K. from the European Union (EU), the European economy has become highly unpredictable with disruptions and restrictions in acquisitions and trade with other European Union members. Such activities weigh on company’s revenues and margins.

ABM Industries has a highly leveraged balance sheet. Notably, its long-term debt rose from $268.3 million in 2016 to $1.16 billion at the end of 2017. The company had $62.8 million of cash and cash equivalents in 2017. As of Jan 31, 2018, cash and cash equivalents were $68.6 million while long-term debt was $1.17 billion. This implies that ABM Industries is currently unable to generate adequate amount of operating cash flow to service its debt.

Stocks to Consider

Some better-ranked stocks in the broader Business Services sector include Accenture plc (ACN - Free Report) , NV5 Global (NVEE - Free Report) and Bureau Veritas S. A. (BVRDF - Free Report) . All the stocks carry a Zacks Rank #2 (Buy).   

The long-term expected earnings per share growth rates for Accenture, NV5 Global and Bureau Veritas are 10%, 20% and 8%, respectively.

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