AGCO has been treading water for the past six months, recording a small return of 1.3% while holding steady at $106.11. The stock also fell short of the S&P 500’s 16.3% gain during that period.

Is now the time to buy AGCO, 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 Do We Think AGCO Will Underperform?

We don't have much confidence in AGCO. Here are three reasons we avoid AGCO and a stock we'd rather own.

1. Core Business Falling Behind as Demand Declines

Investors interested in Agricultural Machinery companies should track organic revenue in addition to reported revenue. This metric gives visibility into AGCO’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, AGCO’s organic revenue averaged 17% year-on-year declines. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests AGCO might have to lean into acquisitions to grow, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus).

2. EPS Growth Has Stalled

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

AGCO’s flat EPS over the last five years was below its 2.4% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.

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).

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, AGCO’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

We see the value of companies helping their customers, but in the case of AGCO, we’re out. With its shares underperforming the market lately, the stock trades at 18.6× forward P/E (or $106.11 per share). This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are better stocks to buy right now. Let us point you toward a fast-growing restaurant franchise with an A+ ranch dressing sauce.

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