Masco currently trades at $75.17 per share and has shown little upside over the past six months, posting a small loss of 1.7%. The stock also fell short of the S&P 500’s 11.7% gain during that period.

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Why Do We Think Masco Will Underperform?

We’re cautious about Masco. Here are three reasons why there are better opportunities than MAS, plus one stock we’d rather own.

1. Core Business Falling Behind as Demand Plateaus

Investors interested in Home Construction Materials companies should track organic revenue in addition to reported revenue. This metric gives visibility into Masco’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.

Over the last two years, Masco failed to grow its organic revenue. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Masco might have to lean into acquisitions to accelerate growth, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus).

2. Projected Revenue Growth Is Slim

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 Masco’s revenue to rise by 1.6%. Although this projection indicates its newer products and services will fuel better top-line performance, it is still below average for the sector.

3. New Investments Fail to Bear Fruit as ROIC Declines

We like to invest in businesses with high returns, but the trend in a company’s ROIC can also be an early indicator of future business quality.

Over the last few years, Masco’s ROIC has unfortunately decreased. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Final Judgment

We cheer for all companies making their customers lives easier, but in the case of Masco, we’ll be cheering from the sidelines. With its shares lagging the market recently, the stock trades at 17.6× forward P/E (or $75.17 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. There are superior stocks to buy right now. We’d suggest looking at an all-weather company that owns household favorite Taco Bell.

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