Martin Marietta Materials currently trades at $585.98 per share and has shown little upside over the past six months, posting a small loss of 4.7%. The stock also fell short of the S&P 500’s 7.9% gain during that period.

Is now the time to buy Martin Marietta Materials, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Is Martin Marietta Materials Not Exciting?

We're sitting this one out for now. Here are three reasons you should be careful with MLM 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. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Martin Marietta Materials grew its sales at a tepid 6% compounded annual growth rate. This fell short of our benchmark for the industrials sector.

2. EPS Growth Has Stalled Over the Last Two Years

While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.

Martin Marietta Materials’s flat EPS over the last two years was weak. On the bright side, this performance was better than its 2.5% annualized revenue declines.

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).

Martin Marietta Materials historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 8.3%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

Final Judgment

Martin Marietta Materials isn’t a terrible business, but it doesn’t pass our quality test. With its shares lagging the market recently, the stock trades at 29.8× forward P/E (or $585.98 per share). Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're fairly confident there are better investments elsewhere. We’d suggest looking at one of Charlie Munger’s all-time favorite businesses.

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