J. M. Smucker trades at $123.42 and has moved in lockstep with the market. Its shares have returned 13.8% over the last six months while the S&P 500 has gained 13.1%.

Is there a buying opportunity in J. M. Smucker, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.

Why Do We Think J. M. Smucker Will Underperform?

We’re sitting this one out for now. Here are three reasons why SJM doesn’t excite us, plus one stock we’d rather own.

1. Demand Slipping as Sales Volumes Decline

Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.

J. M. Smucker’s average quarterly sales volumes have shrunk by 1.1% over the last two years. This decrease isn’t ideal because the quantity demanded for consumer staples products is typically stable.

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 J. M. Smucker’s revenue to drop by 2.3%, a decrease from its 2.7% annualized growth for the past three years. This projection is underwhelming and indicates 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? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

J. M. Smucker historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 1.3%, lower than the typical cost of capital (how much it costs to raise money) for consumer staples companies.

Final Judgment

We see the value of companies helping consumers, but in the case of J. M. Smucker, we’re out. That said, the stock currently trades at 12.3× forward P/E (or $123.42 per share). This valuation multiple is fair, but we don’t have much confidence in the company. There are superior stocks to buy right now. We’d suggest looking at the Amazon and PayPal of Latin America.

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