Central Garden & Pet’s 36.1% return over the past six months has outpaced the S&P 500 by 29.9%, and its stock price has climbed to $44.51 per share. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.

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Why Is Central Garden & Pet Not Exciting?

Despite the momentum, we’re sitting this one out for now. Here are three reasons why there are better opportunities than CENT, plus one stock we’d rather own.

1. Revenue Spiraling Downwards

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last three years, Central Garden & Pet’s demand was weak and its revenue declined by 1% per year. This wasn’t a great result and signals it’s a lower quality business.

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 Central Garden & Pet’s revenue to drop by 8.2%. This projection doesn’t excite us and implies its products will face some demand challenges.

3. Previous Growth Initiatives Haven’t Impressed

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Central Garden & Pet historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 7.8%, somewhat low compared to the best consumer staples companies that consistently pump out 20%+.

Final Judgment

Central Garden & Pet’s business quality ultimately falls short of our standards. With its shares topping the market in recent months, the stock trades at 15× forward P/E (or $44.51 per share). Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We’re pretty confident there are more exciting stocks to buy at the moment. We’d recommend looking at one of our all-time favorite software stocks.

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