What a brutal six months it’s been for General Mills. The stock has dropped 27.5% and now trades at $34.84, rattling many shareholders. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.
Is now the time to buy General Mills, 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 General Mills Will Underperform?
Despite the more favorable entry price, we're swiping left on General Mills for now. Here are three reasons there are better opportunities than GIS and a stock we'd rather own.
1. Demand Slipping as Sales Volumes Decline
Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.
General Mills’s average quarterly sales volumes have shrunk by 4.1% over the last two years. This decrease isn’t ideal because the quantity demanded for consumer staples products is typically stable. 
2. Projected Revenue Growth Shows Limited Upside
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 General Mills’s revenue to stall. Although this projection implies its newer products will catalyze better top-line performance, it is still below average for the sector.
3. EPS Trending Down
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.
Sadly for General Mills, its EPS declined by 8.1% annually over the last three years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.
Final Judgment
We cheer for all companies serving everyday consumers, but in the case of General Mills, we’ll be cheering from the sidelines. Following the recent decline, the stock trades at 10.3× forward P/E (or $34.84 per share). This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are superior stocks to buy right now. Let us point you toward a top digital advertising platform riding the creator economy.
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