Over the past six months, Lockheed Martin’s shares (currently trading at $564.17) have posted a disappointing 12.9% loss, well below the S&P 500’s 10.5% gain. This might have investors contemplating their next move.

Is now the time to buy Lockheed Martin, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.

Why Do We Think Lockheed Martin Will Underperform?

Even with the cheaper entry price, we’re cautious about Lockheed Martin. Here are three reasons why LMT doesn’t excite us, plus one stock we’d rather own.

1. Long-Term Revenue Growth Disappoints

Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Lockheed Martin grew its sales at a sluggish 2.9% compounded annual growth rate. This fell short of our benchmarks.

2. EPS Barely Growing

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Lockheed Martin’s weak 1.1% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability 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 can also be an early indicator of future business quality.

Unfortunately, Lockheed Martin’s ROIC has decreased 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

Lockheed Martin doesn’t pass our quality test. Following the recent decline, the stock trades at 18.2× forward P/E (or $564.17 per share). This multiple tells us a lot of good news is priced in - you can find more timely opportunities elsewhere. We’d suggest looking at one of Charlie Munger’s all-time favorite businesses.

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