Here's Why Investors Should Hold on to Envestnet (ENV) Stock

Shares of Envestnet (NYSE:ENV), Inc. ENV have gained 16.5% year to date, significantly outperforming 9.2% rally of the industry it belongs to.

The company has an impressive Growth Score of A. This style score condenses all the essential metrics from a company’s financial statements to get a true sense of quality and sustainability of its growth. Envestnet’s earnings are anticipated to register 17.7% growth in 2020 and 5.5% in 2021.

What’s Benefiting the Company?

Envestnet’s business model ensures solid asset-based and subscription-based recurring revenue generation capacity. The company provides asset-based and subscription-based services on a business-to-business-to-consumer basis to financial services clients. These clients offer solutions based on Envestnet’s platform to their end users. On a business-to-business basis, the company delivers an open platform to customers and third-party developers through an open API framework.

In the third quarter of 2020 asset-based recurring revenues of $137.7 million increased 8.8% year over year and subscription-based recurring revenues of $107.89 million were up 7.3%.

Envestnet continues to focus on technology development with a view to improve operational efficiency, increase market competitiveness, address regulatory demands and cater to client-driven requests for new capabilities. The company’s technology design allows for significant scalability.

Some Risks

Envestnet's total debt to total capital ratio of 0.44 at the end of the third quarter of 2020 was higher than the industry’s 0.40. A higher debt as a percentage of total capital indicates a higher risk of insolvency.

Further, cash and cash equivalent balance of $363 million at the end of the third quarter was well below the debt level of $750 million, underscoring that the company doesn’t have enough cash to meet this debt burden.

Zacks Rank and Stocks to Consider

Envestnet currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Zacks Business Services sector are Republic Services (NYSE:RSG) RSG, Gartner (NYSE:IT) IT and Insperity (NYSE:NSP) NSP, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1(Strong Buy) Rank stocks here.

Long-term earnings (three to five years) growth rate for Republic Services, Gartner and Insperity is estimated at 9.4%, 13.5% and 15%, respectively.

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