4 Reasons Thomson Reuters Corp. Isn’t a Good Buy

Thomson Reuters Corp. (TSX:TRI)(NYSE:TRI) is an expensive stock to own given the challenges the company faces.

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Thomson Reuters Corp. (TSX:TRI)(NYSE:TRI) provides information to professionals and businesses, with segments in financial & risk, legal, and tax & accounting. The company aims to provide its users with intelligent information that will allow people to make better and more informed decisions.

The stock price is down over 5% in the past month, but there are four reasons why I would avoid investing in Thomson Reuters at its current price.

The company is highly dependent on one segment that may not be sustainable

In its most recent fiscal year, the company’s financial & risk segment, which provides critical news and analytics, made up more than half of its revenue for the year, while legal took up almost a third. Thomson Reuters is still predominantly known for being a media company and for providing users with quality content.

The company has acknowledged the challenges that come with this segment: there’s lots of competition and the ability for customers to be self-sufficient. In a time when there are more ways to consume information, and with people using social outlets to get information, this type of business as is may not see much of a future without significant changes or cost reductions.

Low expectations for the year

The company’s outlook for the year expects revenue growth in the low single digits. Thomson Reuters has already had challenges growing sales with its most recent fiscal year showing revenues flat from the previous year and down 11% from 2014.

In 2017, the company has seen revenues up less than 1% for the first six months of the year, while overall earnings are down $100 million for a decline of 16% from a year ago.

High variability in earnings

In the past four years, the company’s earnings per share have fluctuated from a low of just $0.16 in 2013 to a high of $4.13 in 2016. In the most recent fiscal year, the company benefited from the sale of its intellectual property & science business, where it made a gain on the sale of over $2.1 billion. Without the gain on its discontinued operations, the company’s per-share earnings were just $1.34 and an overall decline from the prior year.

In 2014, the company’s earnings of $2.36 per share were assisted by almost $1 billion in operating gains, which were mainly the result of foreign exchange adjustments when the company lost control of one of its subsidiaries.

The problem when you have so much variability in earnings from one year to the next is that it makes it difficult to evaluate the company’s overall performance, and it might make investors a bit hesitant to buy the stock given the uncertainty.

High valuation

At over $56 per share, the company is trading at over 30 times its earnings and over three times its book value. With flat revenue growth and no real signs of that changing, it is hard to justify paying such a premium for the company. Typically, you would expect to pay at multiples of over 30 for high-growth stocks, specifically tech companies.

Bottom line

Thomson Reuters has seen its share price decline over 4% so far this year, and I would wait for more of a decline before buying the stock, if I bought it at all. With high multiples and minimal growth, there is not much there for value or growth investors. The company’s dividend of over 3% is not bad, but it’s still is not competitive enough to attract dividend-focused investors either.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor David Jagielski has no position in any stocks mentioned.

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