Over the past six months, UFP Industries’s shares (currently trading at $90.63) have posted a disappointing 7.7% loss, well below the S&P 500’s 1% gain. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy UFP Industries, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Do We Think UFP Industries Will Underperform?
Even with the cheaper entry price, we're cautious about UFP Industries. Here are three reasons there are better opportunities than UFPI and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, UFP Industries grew its sales at a sluggish 4.2% compounded annual growth rate. This fell short of our benchmark for the industrials sector.
2. EPS Barely Growing
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
UFP Industries’s unimpressive 4.5% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.
3. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, UFP Industries’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
UFP Industries falls short of our quality standards. After the recent drawdown, the stock trades at 16.9× forward P/E (or $90.63 per share). This valuation multiple is fair, but we don’t have much confidence in the company. There are more exciting stocks to buy at the moment. Let us point you toward a safe-and-steady industrials business benefiting from an upgrade cycle.
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