Omnichannel customer acquisition platform System1 Inc. (SST - Get Rating) in Los Angeles, Calif., made its stock market debut on Jan. 28, 2022. The company uses technology and data science to run a responsive acquisition marketing platform. In addition, the organization runs a real-time discount code search engine and directory that provides coupon destinations for internet customers.

Its shares have gained 145.5% in price year-to-date to close yesterday’s trading session at $24.45. 

However, SST’s negative profit margin could raise investor concerns over its near-term prospects. In addition, analysts’ price targets also indicate a potential downside in the stock, making its prospects look bleak.

Here is what could shape SST’s performance in the near term:

Poor Profitability

SST’s 14.6% trailing-12-months gross profit margin is 71.3% lower than the 50.8% industry average. Its $60.71 million trailing-12-months cash from operations is 79.3% lower than the $292.88 million industry average. Also, its trailing-12-months net income margin and levered FCF margin are 7.9% and 47.2% lower than their respective industry averages.

Price Target Indicate Potential Downside

The 12-month median price target of $20.50 indicates a 16.2% potential upside. The price targets range from a low of $15.00 to a high of $26.00.

POWR Ratings Reflect Uncertainty

SST has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. The POWR ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. SST has a D grade for Quality. The company’s poor profitability is consistent with the Quality grade.

Among the 89 stocks in the A-rated Industrial – Services industry, SST is ranked #81.

Beyond what I have stated above, one can view SST ratings for Value, Stability, Momentum, Growth, and Sentiment here.

Bottom Line

While the company could potentially capitalize on its multiple strategic acquisitions over the long term, we believe SST’s growth potential is currently limited due to its poor profitability and analysts’ price targets. Therefore, we think the stock is avoided now.

How Does System1 Inc. (SST) Stack Up Against its Peers?

While SST has an overall D rating, one might want to consider its industry peers, PT United Tractors Tbk (PUTKY - Get Rating), Koc Holding A.S. (KHOLY - Get Rating), and DLH Holdings Corp. (DLHC - Get Rating), which have an overall A (Strong Buy) rating.

SST shares fell $0.42 (-1.72%) in premarket trading Thursday. Year-to-date, SST has gained 145.48%, versus a -6.37% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

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