Mondelez trades at $66.06 per share and has stayed right on track with the overall market, losing 6.5% over the last six months while the S&P 500 is down 9.8%. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.
Is there a buying opportunity in Mondelez, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Despite the more favorable entry price, we don't have much confidence in Mondelez. Here are three reasons why there are better opportunities than MDLZ and a stock we'd rather own.
Why Is Mondelez Not Exciting?
Founded as Nabisco in 1903, Mondelez (NASDAQ: MDLZ) is a packaged snacks powerhouse best known for its Oreo, Cadbury, Toblerone, Ritz, and Trident brands.
1. Projected Revenue Growth Is Slim
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 Mondelez’s revenue to rise by 2.9%, a deceleration versus its 8.3% annualized growth for the past three years. This projection doesn't excite us and implies its products will face some demand challenges.
2. Free Cash Flow Margin Stuck in Neutral
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
As you can see below, Mondelez’s margin was unchanged over the last year, showing it couldn’t improve. Its free cash flow margin for the trailing 12 months was 9.7%.
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? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Mondelez historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 8.1%, somewhat low compared to the best consumer staples companies that consistently pump out 20%+.
Final Judgment
Mondelez isn’t a terrible business, but it doesn’t pass our quality test. Following the recent decline, the stock trades at 20.6× forward price-to-earnings (or $66.06 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better investment opportunities out there. We’d recommend looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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