Owens Corning trades at $117.16 and has moved in lockstep with the market. Its shares have returned 7.2% over the last six months while the S&P 500 has gained 10%.
Is there a buying opportunity in Owens Corning, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Do We Think Owens Corning Will Underperform?
We don’t have much confidence in Owens Corning. Here are three reasons we avoid OC and a stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Regrettably, Owens Corning’s sales grew at a tepid 5.9% compounded annual growth rate over the last five years. This was below our standard for the industrials sector.
2. EPS Took a Dip Over the Last Two Years
Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.
Sadly for Owens Corning, its EPS declined by 17% annually over the last two years while its revenue grew by 2.5%. This tells us the company became less profitable on a per-share basis 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 is what often surprises the market and moves the stock price. Unfortunately, Owens Corning’s ROIC has decreased significantly 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
Owens Corning falls short of our quality standards. That said, the stock currently trades at 11.3× forward P/E (or $117.16 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are better investments elsewhere. We’d recommend looking at a top digital advertising platform riding the creator economy.
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