Leggett & Platt has been treading water for the past six months, recording a small return of 1.7% while holding steady at $9.79. The stock also fell short of the S&P 500’s 8.6% gain during that period.

Is now the time to buy Leggett & Platt, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Do We Think Leggett & Platt Will Underperform?

We don't have much confidence in Leggett & Platt. Here are three reasons there are better opportunities than LEG and a stock we'd rather own.

1. Long-Term Revenue Growth Flatter Than a Pancake

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, Leggett & Platt struggled to consistently increase demand as its $4.24 billion of sales for the trailing 12 months was close to its revenue five years ago. This was below our standards and signals it’s a low quality business.

2. EPS Trending Down

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

Sadly for Leggett & Platt, its EPS declined by 11.8% annually over the last five years while its revenue was flat. This tells us the company struggled because its fixed cost base made it difficult to adjust to choppy demand.

3. New Investments Fail to Bear Fruit as ROIC Declines

A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared 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. Over the last few years, Leggett & Platt’s ROIC has unfortunately decreased significantly. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Final Judgment

Leggett & Platt falls short of our quality standards. With its shares trailing the market in recent months, the stock trades at 8.3× forward P/E (or $9.79 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are superior stocks to buy right now. We’d suggest looking at one of our top digital advertising picks.

Stocks We Like More Than Leggett & Platt

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