Over the past six months, Interpublic Group’s shares (currently trading at $24.86) have posted a disappointing 6.7% loss, well below the S&P 500’s 7.5% gain. This might have investors contemplating their next move.
Is there a buying opportunity in Interpublic Group, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Do We Think Interpublic Group Will Underperform?
Despite the more favorable entry price, we don't have much confidence in Interpublic Group. Here are three reasons why IPG doesn't excite us and a stock we'd rather own.
1. Core Business Falling Behind as Demand Plateaus
Investors interested in Advertising & Marketing Services companies should track organic revenue in addition to reported revenue. This metric gives visibility into Interpublic Group’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.
Over the last two years, Interpublic Group failed to grow its organic revenue. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Interpublic Group might have to lean into acquisitions to accelerate growth, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus). 
2. Revenue Projections Show Stormy Skies Ahead
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Interpublic Group’s revenue to drop by 2.5%, close to its flat result for the past five years. This projection is underwhelming and implies its newer products and services will not accelerate its top-line performance yet.
3. 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, Interpublic Group’s margin dropped by 9.6 percentage points over the last five years. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. If the longer-term trend returns, it could signal increasing investment needs and capital intensity. Interpublic Group’s free cash flow margin for the trailing 12 months was 11.6%.
Final Judgment
Interpublic Group falls short of our quality standards. After the recent drawdown, the stock trades at 9.2× forward P/E (or $24.86 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better stocks to buy right now. We’d suggest looking at one of our all-time favorite software stocks.
Stocks We Would Buy Instead of Interpublic Group
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