3 Reasons Why CDW Poses Risks and One Alternative Stock Worth Considering

CDW Stock Faces Steep Decline

Over the past six months, CDW's share price has plummeted by 25.9%, settling at $124.43. This sharp drop may leave investors questioning their strategy moving forward.

Is CDW now a bargain, or does it pose additional risk to your investments?

Why We’re Not Enthusiastic About CDW

Despite the recent price drop, our outlook on CDW remains cautious. Below are three key reasons we’re steering clear of this stock, along with an alternative we prefer.

1. Weak Long-Term Sales Growth

Examining a company's revenue trends over several years can reveal its underlying strength. While some businesses enjoy brief periods of success, the best consistently deliver robust growth. CDW, however, has only managed a modest 4% annual revenue increase over the last five years—falling short of industry standards for business services.

CDW Quarterly Revenue

2. Modest Revenue Outlook

Analyst forecasts offer a glimpse into a company's future prospects. While projections aren’t always perfect, accelerating growth tends to lift valuations and share prices, while stagnation can drag them down.

For the coming year, analysts anticipate CDW’s revenue will grow by just 2.8%, closely mirroring its lackluster 4% annualized growth from the past five years. This suggests that new offerings are unlikely to drive significant improvement in the near term.

3. Earnings Per Share Have Plateaued

While long-term earnings trends are important, tracking EPS over shorter periods can highlight emerging issues or opportunities. In CDW’s case, earnings per share have remained flat for the past two years, underperforming even its 2.4% annualized revenue growth. This indicates that profitability per share has declined as the company expanded.

CDW Trailing 12-Month EPS (Non-GAAP)

Our Verdict

CDW’s fundamentals do not meet our investment criteria. After its recent slide, the stock trades at 11.9 times forward earnings (or $124.43 per share). While this may seem reasonable, the potential for gains appears limited compared to the risks. We believe there are more promising opportunities elsewhere. For example, consider the leading endpoint security platform in the market.

Stocks We Prefer Over CDW

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