What a brutal six months it’s been for Owens Corning. The stock has dropped 25.9% and now trades at $107.85, rattling many shareholders. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy Owens Corning, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think Owens Corning Will Underperform?
Even with the cheaper entry price, we're swiping left on Owens Corning for now. Here are three reasons there are better opportunities than OC and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, Owens Corning’s 7.4% annualized revenue growth over the last five years was mediocre. This fell short of our benchmark for the industrials sector.
2. EPS Took a Dip Over the Last Two Years
While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.
Sadly for Owens Corning, its EPS declined by 7.5% annually over the last two years while its revenue grew by 2.2%. This tells us the company became less profitable on a per-share basis as it expanded.
3. New Investments Fail to Bear Fruit as ROIC Declines
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, Owens Corning’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
Owens Corning falls short of our quality standards. Following the recent decline, the stock trades at 11.5× forward P/E (or $107.85 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. There are more exciting stocks to buy at the moment. We’d recommend looking at a top digital advertising platform riding the creator economy.
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