Jacobs Solutions has been treading water for the past six months, holding steady at $132.99. The stock also fell short of the S&P 500’s 6.9% gain during that period.

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Why Do We Think Jacobs Solutions Will Underperform?

We're cautious about Jacobs Solutions. Here are three reasons why there are better opportunities than J and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, Jacobs Solutions’s 1.6% annualized revenue growth over the last five years was sluggish. This was below our standards.

2. Backlog Is Unchanged, Sales Pipeline Stalls

Investors interested in Government & Technical Consulting companies should track backlog in addition to reported revenue. This metric shows the value of outstanding orders that have not yet been executed or delivered, giving visibility into Jacobs Solutions’s future revenue streams.

Over the last two years, Jacobs Solutions failed to grow its backlog, which came in at $22.16 billion in the latest quarter. This performance was underwhelming and shows the company faced challenges in winning new orders. It also suggests there may be increasing competition or market saturation.

3. EPS Trending Down

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

Sadly for Jacobs Solutions, its EPS declined by 9.6% annually over the last five years while its revenue grew by 1.6%. This tells us the company became less profitable on a per-share basis as it expanded.

Final Judgment

We see the value of companies helping their customers, but in the case of Jacobs Solutions, we’re out. With its shares underperforming the market lately, the stock trades at 20.7× forward P/E (or $132.99 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find more timely opportunities elsewhere. We’d recommend looking at one of Charlie Munger’s all-time favorite businesses.

Stocks We Would Buy Instead of Jacobs Solutions

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