Over the past six months, Pilgrim's Pride’s shares (currently trading at $43.63) have posted a disappointing 12% loss, well below the S&P 500’s 15.9% gain. This might have investors contemplating their next move.
Is now the time to buy Pilgrim's Pride, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is Pilgrim's Pride Not Exciting?
Despite the more favorable entry price, we're swiping left on Pilgrim's Pride for now. Here are three reasons we avoid PPC and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, Pilgrim's Pride’s 2.8% annualized revenue growth over the last three years was sluggish. This fell short of our benchmarks.
2. Projected Revenue Growth Shows Limited Upside
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 Pilgrim's Pride’s revenue to stall, a slight deceleration versus This projection doesn't excite us and suggests its products will face some demand challenges.
3. Low Gross Margin Reveals Weak Structural Profitability
All else equal, we prefer higher gross margins because they make it easier to generate more operating profits and indicate that a company commands pricing power by offering more differentiated products.
Pilgrim's Pride has bad unit economics for a consumer staples company, signaling it operates in a competitive market and lacks pricing power because its products can be substituted. As you can see below, it averaged a 11.8% gross margin over the last two years. That means Pilgrim's Pride paid its suppliers a lot of money ($88.19 for every $100 in revenue) to run its business. 
Final Judgment
Pilgrim's Pride isn’t a terrible business, but it doesn’t pass our quality test. Following the recent decline, the stock trades at 9.3× forward P/E (or $43.63 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're pretty confident there are superior stocks to buy right now. We’d suggest looking at an all-weather company that owns household favorite Taco Bell.
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