Campbell’s stock price has taken a beating over the past six months, shedding 35.1% of its value and falling to $20.31 per share. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy Campbell's, 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 Do We Think Campbell's Will Underperform?
Even though the stock has become cheaper, we're swiping left on Campbell's for now. Here are three reasons there are better opportunities than CPB and a stock we'd rather own.
1. Demand Slipping as Sales Volumes Decline
Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.
Campbell’s average quarterly sales volumes have shrunk by 1% over the last two years. This decrease isn’t ideal because the quantity demanded for consumer staples products is typically stable.
2. 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 Campbell’s revenue to drop by 2.8%. This projection is underwhelming and suggests its products will face some demand challenges.
3. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for Campbell's, its EPS declined by 5.1% annually over the last three years while its revenue grew by 3%. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
Campbell's falls short of our quality standards. After the recent drawdown, the stock trades at 9.5× forward P/E (or $20.31 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better stocks to buy right now. We’d suggest looking at a top digital advertising platform riding the creator economy.
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