The past six months have been a windfall for Worthington’s shareholders. The company’s stock price has jumped 48.1%, hitting $62.85 per share. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now the time to buy Worthington, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think Worthington Will Underperform?
We’re glad investors have benefited from the price increase, but we're cautious about Worthington. Here are three reasons why we avoid WOR and a stock we'd rather own.
1. Revenue Spiraling Downwards
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Worthington’s demand was weak and its revenue declined by 17.7% per year. This wasn’t a great result and signals it’s a low quality business. 
2. EPS Barely Growing
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Worthington’s EPS grew at an unimpressive 4.1% compounded annual growth rate over the last five years. On the bright side, this performance was better than its 17.7% annualized revenue declines and tells us management adapted its cost structure in response to a challenging demand environment.
3. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
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, Worthington’s ROIC has decreased significantly over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
Final Judgment
We see the value of companies helping their customers, but in the case of Worthington, we’re out. Following the recent surge, the stock trades at 18.9× forward P/E (or $62.85 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. There are better stocks to buy right now. Let us point you toward one of our top digital advertising picks.
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