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Here’s Why You Should Sell Omnicom (OMC) Stock Right Now

Zacks

Omnicom Group Inc. OMC is one of the largest advertising, marketing and corporate communications companies in the world. The company’s agencies operate in all the major markets across the globe and provide an extensive range of services. However, the stock currently carries a Zacks Rank #4 (Sell).

Driving Factors

Sales/Assets Ratio

The sales/asset ratio is often overlooked by investors, but it can be an important indicator in growth investing nonetheless. Currently, the company has an S/TA ratio of 0.70 which means that it gets 70 cents in sales for each dollar in assets. Comparing this to the industry average ratio of 0.87 we can say that Omnicom is a bit less efficient than the industry at large.


P/S Ratio

Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Right now, Omnicom has a P/S ratio of about 1.26. This is a bit higher than the industry average, which is at 1.23 right now.

Earnings Estimate Revisions

In addition to the unfavorable metrics outlined above, investors should also consider the downward trend in estimate revisions. Analysts have been lowering their estimates for Omnicom lately. Over the same period, the consensus estimate for the current quarter slumped from $1.44 to $1.39 today.However, the company has outperformed the Zacks categorized Advertising and Marketing industry in the last three months with an average loss of 4.01% compared with 5.87% decline for the latter.

Other Factors

A significant portion of Omnicom’s revenues comes from Europe. In the present scenario, when the economy in the region is highly unpredictable particularly after the Brexit referendum, it becomes difficult for the company to increase revenues and reduce costs. Brexit could further result in higher tariff and non-tariff barriers to trade between the U.K. and the European Union, lowering the productivity of the company. In addition, the company is susceptible to market risks of losing contracts related to media purchases and production costs, which thereby affects its bottom line and undermines its organic growth to some extent.

The company forms part of the communications industry which is highly competitive in nature. Various agencies and media service providers compete with each other to maintain existing client relationships and to win new clients. Also, keeping in view the service-oriented nature of the whole industry, it becomes imperative for the company to increase the count of talented employees as well as retain the existing ones. These factors are likely to pose some challenges for the company.

It’s global enterprise and revenues are derived in various currencies other than the U.S. dollars. The strengthening of U.S. dollar has also affected the company's revenues. As the company expands its international operations, it highly exposes itself to risks from foreign exchange barriers and uncertainty from monetary devaluation. In addition, the company faces huge concentration risk as it relies on a few big clients for its businesses. These developments might prove to be a strain on Omnicom in the coming quarters.

Some better-ranked stocks in the industry include Hitachi, Ltd. HTHIY, Publicis Groupe S.A. PUBGY and WPP plc WPPGY, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Hitachi is currently trading at a forward P/E of 10.7x. It has a long-term earnings growth expectation of 13%.

Publicis Groupe has a long-term earnings growth expectation of 9.51%. It is currently trading at a forward P/E of 14.4x.

WPP plc has a long-term earnings growth expectation of 9.78%. It is currently trading at a forward P/E of 13.8x.

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