Over the past six months, Fortive has been a great trade, beating the S&P 500 by 7.9%. Its stock price has climbed to $60.25, representing a healthy 15.8% increase. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now the time to buy Fortive, 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 Fortive Will Underperform?
We’re happy investors have made money, but we're sitting this one out for now. Here are three reasons there are better opportunities than FTV and a stock we'd rather own.
1. Revenue Spiraling Downwards
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. Fortive’s demand was weak over the last five years as its sales fell at a 2.4% annual rate. This was below our standards and signals it’s a low quality business.
2. EPS Growth Has Stalled
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Fortive’s flat EPS over the last five years was weak. On the bright side, this performance was better than its 2.4% annualized revenue declines.
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).
Fortive historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 5.5%, somewhat low compared to the best industrials companies that consistently pump out 20%+.
Final Judgment
We see the value of companies helping their customers, but in the case of Fortive, we’re out. With its shares beating the market recently, the stock trades at 19.9× forward P/E (or $60.25 per share). This multiple tells us a lot of good news is priced in - we think there are better opportunities elsewhere. Let us point you toward the most entrenched endpoint security platform on the market.
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