Over the past six months, Post’s shares (currently trading at $90.07) have posted a disappointing 7.1% loss, well below the S&P 500’s 8% gain. This might have investors contemplating their next move.
Is now the time to buy Post, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Post Not Exciting?
Even with the cheaper entry price, we’re swiping left on Post for now. Here are three reasons we avoid POST, plus one stock we’d rather own.
1. Revenue Projections Show Stormy Skies Ahead
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 Post’s revenue to drop by 2.5%. This projection is underwhelming and implies its products will face some demand challenges.
2. Low Gross Margin Hinders Flexibility
At StockStory, we prefer high gross margin businesses because they indicate pricing power or differentiated products, giving the company a chance to generate higher operating profits.
Post’s gross margin is slightly below the average consumer staples company, giving it less room to invest in areas such as marketing and talent to grow its brand. As you can see below, it averaged a 29.1% gross margin over the last two years. Said differently, for every $100 in revenue, a chunky $70.93 went towards paying for raw materials, production of goods, transportation, and distribution.
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? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
Post historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 5.8%, somewhat low compared to the best consumer staples companies that consistently pump out 20%+.
Final Judgment
Post isn’t a terrible business, but it doesn’t pass our bar. After the recent drawdown, the stock trades at 11.4× forward P/E (or $90.07 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We’re fairly confident there are better investments elsewhere. Let us point you toward a safe-and-steady industrials business benefiting from an upgrade cycle.
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