Over the last six months, General Mills’s shares have sunk to $49.33, producing a disappointing 13.9% loss - a stark contrast to the S&P 500’s 24.7% gain. This may have investors wondering how to approach the situation.
Is now the time to buy General Mills, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free for active Edge members.
Why Is General Mills Not Exciting?
Even with the cheaper entry price, we're sitting this one out for now. Here are three reasons there are better opportunities than GIS and a stock we'd rather own.
1. Demand Slipping as Sales Volumes Decline
Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.
General Mills’s average quarterly sales volumes have shrunk by 2.4% over the last two years. This decrease isn’t ideal because the quantity demanded for consumer staples products is typically stable. 
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 General Mills’s revenue to drop by 3.2%, a decrease from This projection doesn't excite us and indicates its products 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, General Mills’s margin dropped by 3.1 percentage points over the last year. This decrease warrants extra caution because General Mills failed to grow its revenue organically. Its cash profitability could decay further if it tries to reignite growth through investments.
Final Judgment
General Mills isn’t a terrible business, but it isn’t one of our picks. Following the recent decline, the stock trades at 13.3× forward P/E (or $49.33 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're pretty confident there are superior stocks to buy right now. We’d recommend looking at one of our top software and edge computing picks.
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