Over the past six months, Graco’s stock price fell to $80.14. Shareholders have lost 13.2% of their capital, which is disappointing considering the S&P 500 has climbed by 10.5%. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.
Is now the time to buy Graco, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Graco Not Exciting?
Despite the more favorable entry price, we’re cautious about Graco. Here are three reasons you should be careful with GGG, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Graco’s 3.9% annualized revenue growth over the last five years was sluggish. 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.
Graco’s unimpressive 5% annual EPS growth over the last five years aligns with its revenue performance. On the bright side, this tells us its incremental sales were profitable.
3. New Investments Fail to Bear Fruit as ROIC Declines
A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).
Over the last few years, Graco’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
Graco’s business quality ultimately falls short of our standards. Following the recent decline, the stock trades at 23.8× forward P/E (or $80.14 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We’re fairly confident there are better stocks to buy right now. Let us point you toward a top digital advertising platform riding the creator economy.
Stocks We Like More Than Graco
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