Are you still holding shares of Symantec CorporationSYMC in your portfolio? If yes, then this is the best time to dump the stock as chances of favorable returns in the near term appear slim.
The stock has underperformed the industry in the past six months. Symantec's shares have registered a return of 7.3%, compared with the industry's gain of 14.9%. Also, the company declined more than 3% in yesterday's trading session.
During first-quarter fiscal 2018 results, Symantec announced that privately-owned DigiCert Inc. has agreed to buy its Website Security business for $950 million in cash and approximately a 30% stake in the latter's business. Symantec's Website Security solution verifies the identity of websites. We believe the latest move is Symantec's effort to end the ongoing dispute with Alphabet's Google GOOGL which has accused the company for mis-issuing over 30,000 of web certifications. However, it should be noted that its certified authority business was a very high margin business. Consequently, we have grown increasingly cautious regarding Symantec's profitability in the near future as it will lose the high margin associated with this business.
Furthermore, changing customer spending behavior makes us pretty skeptical about Symantec's near-term performance. Moreover, smaller companies like Kaspersky are consistently launching comparable products. These, along with competition from the likes of Microsoft MSFT and Intel INTC , remain headwinds.
Sales of Symantec's security solutions have also been affected by the shrinking PC market. According to Gartner's latest report, PC shipments (including premium ultra-mobiles) in second-quarter 2017 fell 4.3% year over year to 61.1 million units. The decline marked eleventh straight quarter of year-over-year fall which according to the research firm is the longest ever duration of decline in the history of the PC industry. Further, the second-quarter shipment marked the lowest volume since 2007. IDC too has almost similar tallies. Per the research firm, worldwide PC shipment totalled 60.5 million in the second quarter, representing a decline of 3.3% on a year-over-year basis. However, the decline was lower than IDC's earlier forecast of 3.9%. The cannibalization of PCs by mobile devices is hurting overall demand. The continuous decline in PC shipments will negatively impact the company's Norton Anti-Virus sales.
Given the other unattractive attributes like low return on equity (ROE), low return on capital (ROC) and low return on assets (ROA), makes the stock look very unappealing. Symantec currently trades at a ROE of 21.6%, much lower than the industry's average of 31.2%. Notably, the company has an ROC and ROA of 3.9% and 4.7% compared with the industry's average of 16.1% and 10.6%, respectively.
We note that the Symantec currently has a trailing 12-month P/E ratio of 57.25. This level compares unfavorably to some extent with what the industry saw over the last year. The ratio is higher than the average level of 44.36 and is toward its higher end of the valuation range over this period. Hence, valuation looks slightly stretched from a P/E perspective.
We expect the aforementioned factors to hurt the company's near-term profitability. Hence, we recommend investors to stay away from Symantec shares until its Zacks Rank and fundamentals improve.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation. See Them Free>>