Over the past six months, Cal-Maine’s stock price fell to $79.32. Shareholders have lost 9.4% of their capital, which is disappointing considering the S&P 500 has climbed by 6.9%. This might have investors contemplating their next move.
Is now the time to buy Cal-Maine, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Cal-Maine Not Exciting?
Even though the stock has become cheaper, we don’t have much confidence in Cal-Maine. Here are three reasons why CALM doesn’t excite us, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Regrettably, Cal-Maine’s sales grew at a tepid 4.3% compounded annual growth rate over the last three years. This fell short of our benchmark for the consumer staples sector.
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 Cal-Maine’s revenue to drop by 21.1%, a decrease from This projection is underwhelming and suggests its products will face some demand challenges.
3. Shrinking Operating Margin
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Looking at the trend in its profitability, Cal-Maine’s operating margin decreased by 8.1 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its operating margin for the trailing 12 months was 24.4%.
Final Judgment
Cal-Maine isn’t a terrible business, but it doesn’t pass our quality test. After the recent drawdown, the stock trades at 23× forward P/E (or $79.32 per share). This multiple tells us a lot of good news is priced in - we think there are better stocks to buy right now. We’d recommend looking at the Amazon and PayPal of Latin America.
Stocks We Would Buy Instead of Cal-Maine
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