Spectrum Brands has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 9.3% to $60.04 per share while the index has gained 9.9%.

Is now the time to buy Spectrum Brands, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free for active Edge members.

Why Do We Think Spectrum Brands Will Underperform?

We're sitting this one out for now. Here are three reasons why SPB doesn't excite us and a stock we'd rather own.

1. Core Business Falling Behind as Organic Sales Decline

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.

Spectrum Brands’s demand has been falling over the last eight quarters, and on average, its organic sales have declined by 1.8% year on year.

2. Projected Revenue Growth Shows Limited Upside

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 Spectrum Brands’s revenue to stall. While this projection suggests its newer products will catalyze better top-line performance, it is still below the sector average.

3. Previous Growth Initiatives Haven’t Paid Off Yet

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).

Spectrum Brands historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 0.9%, lower than the typical cost of capital (how much it costs to raise money) for consumer staples companies.

Final Judgment

Spectrum Brands falls short of our quality standards. That said, the stock currently trades at 13.3× forward P/E (or $60.04 per share). This multiple tells us a lot of good news is priced in - we think other companies feature superior fundamentals at the moment. We’d suggest looking at a dominant Aerospace business that has perfected its M&A strategy.

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