Carrier Global has been treading water for the past six months, recording a small loss of 4.8% while holding steady at $62.30. The stock also fell short of the S&P 500’s 17.7% gain during that period.

Is there a buying opportunity in Carrier Global, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Is Carrier Global Not Exciting?

We're cautious about Carrier Global. Here are three reasons there are better opportunities than CARR and a stock we'd rather own.

1. Slow Organic Growth Suggests Waning Demand In Core Business

We can better understand HVAC and Water Systems companies by analyzing their organic revenue. This metric gives visibility into Carrier Global’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, Carrier Global’s organic revenue averaged 3% year-on-year growth. This performance was underwhelming and suggests it may need to improve its products, pricing, or go-to-market strategy, which can add an extra layer of complexity to its operations.

2. Free Cash Flow Margin Dropping

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

As you can see below, Carrier Global’s margin dropped by 5.3 percentage points over the last five years. Continued declines could signal it is in the middle of an investment cycle. Carrier Global’s free cash flow margin for the trailing 12 months was 2.4%.

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, Carrier Global’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

Carrier Global isn’t a terrible business, but it doesn’t pass our quality test. With its shares underperforming the market lately, the stock trades at 19× forward P/E (or $62.30 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are superior stocks to buy right now. Let us point you toward the most entrenched endpoint security platform on the market.

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