Over the last six months, Otis’s shares have sunk to $83.16, producing a disappointing 6.8% loss while the S&P 500 was flat. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy Otis, 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 Is Otis Not Exciting?
Even though the stock has become cheaper, we're sitting this one out for now. Here are three reasons there are better opportunities than OTIS and a stock we'd rather own.
1. Core Business Falling Behind as Demand Plateaus
Investors interested in General Industrial Machinery companies should track organic revenue in addition to reported revenue. This metric gives visibility into Otis’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.
Over the last two years, Otis failed to grow its organic revenue. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Otis might have to lean into acquisitions to accelerate growth, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus). 
2. Projected Revenue Growth Is Slim
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 Otis’s revenue to rise by 5%. While this projection implies its newer products and services will catalyze better top-line performance, it is still below the sector average.
3. Recent EPS Growth Below Our Standards
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.
Otis’s EPS grew at an unimpressive 7% compounded annual growth rate over the last two years. On the bright side, this performance was higher than its flat revenue and tells us management responded to softer demand by adapting its cost structure.
Final Judgment
Otis isn’t a terrible business, but it doesn’t pass our bar. After the recent drawdown, the stock trades at 19.1× forward P/E (or $83.16 per share). Beauty is in the eye of the beholder, but our analysis shows the upside isn’t great compared to the potential downside. We're pretty confident there are more exciting stocks to buy at the moment. We’d recommend looking at our favorite semiconductor picks and shovels play.
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