J. M. Smucker trades at $121.13 per share and has stayed right on track with the overall market, gaining 14% over the last six months. At the same time, the S&P 500 has returned 13.1%.

Is now the time to buy J. M. Smucker, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Do We Think J. M. Smucker Will Underperform?

We don’t have much confidence in J. M. Smucker. Here are three reasons why SJM doesn’t excite us, plus one 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.

J. M. Smucker’s average quarterly sales volumes have shrunk by 1.1% over the last two years. This decrease isn’t ideal because the quantity demanded for consumer staples products is typically stable.

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 J. M. Smucker’s revenue to drop by 3.1%. This projection is underwhelming and indicates its products will see some demand headwinds.

3. Previous Growth Initiatives Haven’t Impressed

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

J. M. Smucker historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 1.1%, lower than the typical cost of capital (how much it costs to raise money) for consumer staples companies.

Final Judgment

We see the value of companies helping consumers, but in the case of J. M. Smucker, we’re out. That said, the stock currently trades at 11.8× forward P/E (or $121.13 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. There are better stocks to buy right now. We’d recommend looking at one of our top software and edge computing picks.

Stocks We Would Buy Instead of J. M. Smucker

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