ACIW Looks Cheap, But Is It a Value Trap or Treasure?
Here is why we think ACIW deserves consideration as a value stock.
- Reasonable Growth: 13.1% LTM and 12.1% last 3 year average.
- Cash Generative: Nearly 16.6% free cash flow margin and 21.3% operating margin LTM.
- No Major Shocks: ACIW has avoided any large revenue or margin collapses.
- Modest Valuation: Despite encouraging fundamentals, ACIW trades at a PE multiple of 17.9
| ACIW | |
|---|---|
| Sector | Information Technology |
| Industry | Application Software |
| PE Ratio | 17.9 |
| Last 12 Month Revenue Growth | 13.1% |
| 3Y Average Annual Revenue Growth | 12.1% |
| Min Annual Revenue Growth Last 3Y | -1.4% |
| Last 12 Month Operating Margin | 21.3% |
| 3Y Average Operating Margin | 16.5% |
| Min Operating Margin Change (Last 2Y) | 4.2% |
| Last 12 Month Free Cash Flow Margin | 16.6% |
That is one way to look at stocks. Trefis High Quality Portfolio evaluates much more, and is designed to reduce stock-specific risk while giving upside exposure
Does This Work?
For 65 similar value stocks chosen as of mid 2024, consider the following stats for the subsequent 1 year period.
- Average peak return of 39.3% vs 14.4% for S&P, with maximum peak return of 133%
- Win rate of 60%; win rate represents % of stocks with positive return
- Average 1-year return of 14.6%, similar to S&P’s despite tariff instability
But Consider The Risk
That said, ACIW isn’t immune to big sell-offs. It plunged nearly 88% in the Dot-Com bubble and dropped around 76% during the Global Financial Crisis. The 2022 inflation shock saw a 54% dip, while the Covid sell-off hit about 46%. Even smaller corrections like in 2018 caused a close to 20% pullback. So, even with solid fundamentals, ACIW can still face steep declines when the market hits turbulence.
The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.