In a sliding market, CSG has defied the odds, trading up to $60.37 per share. Its 27% gain since October 2024 has outpaced the S&P 500’s 1.7% drop. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

Is now the time to buy CSG, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.

We’re glad investors have benefited from the price increase, but we're swiping left on CSG for now. Here are three reasons why there are better opportunities than CSGS and a stock we'd rather own.

Why Do We Think CSG Will Underperform?

Powering billions of critical customer interactions annually, CSG Systems (NASDAQ: CSGS) provides cloud-based software platforms that help companies manage customer interactions, process payments, and monetize their services.

1. Long-Term Revenue Growth Disappoints

A company’s long-term performance is an indicator of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Over the last four years, CSG grew its sales at a mediocre 4.9% compounded annual growth rate. This was below our standard for the business services sector.

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 CSG’s revenue to drop by 1.6%, a decrease from its 4.8% annualized growth for the past two years. This projection doesn't excite us and implies its products and services will face some demand challenges.

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, CSG’s margin dropped by 5 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. CSG’s free cash flow margin for the trailing 12 months was 9.5%.

Final Judgment

We cheer for all companies serving everyday consumers, but in the case of CSG, we’ll be cheering from the sidelines. With its shares outperforming the market lately, the stock trades at 13.5× forward price-to-earnings (or $60.37 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better opportunities elsewhere. We’d recommend looking at the most dominant software business in the world.

Stocks We Would Buy Instead of CSG

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