Burlington has had an impressive run over the past six months as its shares have beaten the S&P 500 by 8.6%. The stock now trades at $281.33, marking a 14.1% gain. This run-up might have investors contemplating their next move.
Is now the time to buy Burlington, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Burlington Not Exciting?
Despite the momentum, we're swiping left on Burlington for now. Here are three reasons why there are better opportunities than BURL and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Burlington’s 8% annualized revenue growth over the last six years was mediocre. This fell short of our benchmark for the consumer retail sector. 
2. Free Cash Flow Margin Dropping
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Burlington’s margin dropped by 7.5 percentage points over the last year. This decrease came from the higher costs associated with opening more stores.
3. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Burlington historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 8.5%, somewhat low compared to the best consumer retail companies that consistently pump out 25%+.
Final Judgment
Burlington isn’t a terrible business, but it doesn’t pass our bar. With its shares beating the market recently, the stock trades at 29.4× forward P/E (or $281.33 per share). Beauty is in the eye of the beholder, but our analysis shows the upside isn’t great compared to the potential downside. We're pretty confident there are superior stocks to buy right now. We’d suggest looking at one of our top digital advertising picks.
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