What a brutal six months it’s been for Lamb Weston. The stock has dropped 31.3% and now trades at $41.59, rattling many shareholders. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Lamb Weston, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Do We Think Lamb Weston Will Underperform?
Even though the stock has become cheaper, we don’t have much confidence in Lamb Weston. Here are three reasons why LW doesn’t excite us, plus one stock we’d rather own.
1. Core Business Falling Behind as Organic Growth Slumps
When analyzing revenue growth, we care most about organic revenue growth. This metric captures a business’s performance excluding one-time events such as mergers, acquisitions, and divestitures as well as foreign currency fluctuations.
The demand for Lamb Weston’s products has barely risen over the last eight quarters. On average, the company’s organic sales have been flat. 
2. Revenue Projections Show Stormy Skies Ahead
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 Lamb Weston’s revenue to drop by 1.1%, a decrease from This projection is underwhelming and indicates its products will see some demand headwinds.
3. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for Lamb Weston, its EPS declined by 9.8% annually over the last three years while its revenue grew by 10.7%. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
We cheer for all companies serving everyday consumers, but in the case of Lamb Weston, we’ll be cheering from the sidelines. After the recent drawdown, the stock trades at 14.7× forward P/E (or $41.59 per share). At this valuation, there’s a lot of good news priced in - you can find more timely opportunities elsewhere. We’d suggest looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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