Over the past six months, Atkore’s stock price fell to $74.28. Shareholders have lost 15.8% of their capital, which is disappointing considering the S&P 500 has climbed by 4.1%. This may have investors wondering how to approach the situation.

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Why Do We Think Atkore Will Underperform?

Even though the stock has become cheaper, we're swiping left on Atkore for now. Here are three reasons why you should be careful with ATKR and a stock we'd rather own.

1. Core Business Falling Behind as Demand Declines

In addition to reported revenue, organic revenue is a useful data point for analyzing Electrical Systems companies. This metric gives visibility into Atkore’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.

Over the last two years, Atkore’s organic revenue averaged 12.1% year-on-year declines. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Atkore might have to lean into acquisitions to grow, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus).

2. EPS Took a Dip Over the Last Two Years

Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.

Sadly for Atkore, its EPS declined by more than its revenue over the last two years, dropping 31.5%. This tells us the company struggled to adjust to shrinking demand.

3. New Investments Fail to Bear Fruit as ROIC Declines

ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Atkore’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 Atkore, we’re out. Following the recent decline, the stock trades at 11.5× forward P/E (or $74.28 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are better investments elsewhere. Let us point you toward one of Charlie Munger’s all-time favorite businesses.

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