Over the past six months, UFP Industries’s shares (currently trading at $79.81) have posted a disappointing 17% loss, well below the S&P 500’s 8.9% gain. This might have investors contemplating their next move.
Is now the time to buy UFP Industries, 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 Do We Think UFP Industries Will Underperform?
Despite the more favorable entry price, we’re cautious about UFP Industries. Here are three reasons we avoid UFPI, plus one stock we’d rather own.
1. Revenue Spiraling Downwards
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. UFP Industries’s demand was weak over the last five years as its sales fell at a 3.4% annual rate. This was below our standards and signals it’s a low quality business.
2. 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 UFP Industries, its EPS declined by 8.3% annually over the last five years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.
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.
Unfortunately, UFP Industries’s ROIC has decreased significantly over the last few years. 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 UFP Industries, we’re out. Following the recent decline, the stock trades at 15.1× forward P/E (or $79.81 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are better stocks to buy right now. We’d recommend looking at a safe-and-steady industrials business benefiting from an upgrade cycle.
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