Owens Corning trades at $135.23 per share and has stayed right on track with the overall market, gaining 15.9% over the last six months. At the same time, the S&P 500 has returned 11.8%.
Is now the time to buy Owens Corning, 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 Do We Think Owens Corning Will Underperform?
We’re passing on Owens Corning for now. Here are three reasons you should be careful with OC, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
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. Unfortunately, Owens Corning’s 4.3% annualized revenue growth over the last five years was sluggish. This fell short of our benchmark for the industrials sector.
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.
Owens Corning’s unimpressive 4.6% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.
3. New Investments Fail to Bear Fruit as ROIC Declines
We like to invest in businesses with high returns, but the trend in a company’s ROIC can also be an early indicator of future business quality.
Over the last few years, Owens Corning’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
We cheer for all companies making their customers lives easier, but in the case of Owens Corning, we’ll be cheering from the sidelines. That said, the stock currently trades at 12.4× forward P/E (or $135.23 per share). This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are better stocks to buy right now. Let us point you toward one of Charlie Munger’s all-time favorite businesses.
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