Regarded as defensive investments, consumer staples stocks are generally safe bets in choppy markets. The flip side is that they frequently fall behind growth industries when times are good, and this was the reality over the past six months as the sector’s 1.8% return has trailed the S&P 500 by 6.1 percentage points.
Some companies can buck this trend, but the odds aren’t great for the ones we’re analyzing today. With that said, here are three consumer stocks we’re passing on.
MGP Ingredients (MGPI)
Market Cap: $412.9 million
Headquartered in Atchison, Kansas, MGP Ingredients (NASDAQ: MGPI) is a leading supplier of high-quality ingredients to the food and beverage industry
Why Is MGPI Risky?
- Annual revenue declines of 12.9% over the last three years indicate problems with its market positioning
- Overall productivity fell over the last year as its plummeting sales were accompanied by a decline in its operating margin
- Falling earnings per share over the last three years has some investors worried as stock prices ultimately follow EPS over the long term
MGP Ingredients’s stock price of $19.36 implies a valuation ratio of 10.9x forward P/E. If you’re considering MGPI for your portfolio, see our FREE research report to learn more.
General Mills (GIS)
Market Cap: $18.72 billion
Best known for its portfolio of powerhouse breakfast cereal brands, General Mills (NYSE: GIS) is a packaged foods company that has also made a mark in cereals, baking products, and snacks.
Why Are We Out on GIS?
- Declining unit sales over the past two years indicate demand is soft and that the company may need to revise its product strategy
- Sales are projected to be flat over the next 12 months and imply weak demand
- Sales were less profitable over the last three years as its earnings per share fell by 8.1% annually, worse than its revenue declines
At $35.25 per share, General Mills trades at 10.1x forward P/E. Check out our free in-depth research report to learn more about why GIS doesn’t pass our bar.
Inter Parfums (IPAR)
Market Cap: $3.04 billion
With licenses to produce colognes and perfumes under brands such as Kate Spade, Van Cleef & Arpels, and Abercrombie & Fitch, Inter Parfums (NASDAQ: IPAR) manufactures and distributes fragrances worldwide.
Why Do We Think Twice About IPAR?
- Subscale operations are evident in its revenue base of $1.49 billion, meaning it has fewer distribution channels than its larger rivals
- Sales are projected to remain flat over the next 12 months as demand decelerates from its three-year trend
- Free cash flow margin dropped by 2.2 percentage points over the last year, implying the company became more capital intensive as competition picked up
Inter Parfums is trading at $94.75 per share, or 18.1x forward P/E. To fully understand why you should be careful with IPAR, check out our full research report (it’s free).
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