Leggett & Platt has gotten torched over the last six months - since October 2024, its stock price has dropped 45.5% to $6.95 per share. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.
Is now the time to buy Leggett & Platt, 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.
Despite the more favorable entry price, we're swiping left on Leggett & Platt for now. Here are three reasons why LEG doesn't excite us and a stock we'd rather own.
Why Do We Think Leggett & Platt Will Underperform?
Founded in 1883, Leggett & Platt (NYSE: LEG) is a diversified manufacturer of products and components for various industries.
1. Revenue Spiraling Downwards
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Leggett & Platt struggled to consistently generate demand over the last five years as its sales dropped at a 1.6% annual rate. This wasn’t a great result and signals it’s a low quality business. 
2. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for Leggett & Platt, its EPS declined by 15.2% annually over the last five years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.
3. New Investments Fail to Bear Fruit as ROIC Declines
A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Leggett & Platt’s ROIC has unfortunately decreased significantly. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
Final Judgment
Leggett & Platt falls short of our quality standards. After the recent drawdown, the stock trades at 5.8× forward price-to-earnings (or $6.95 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better stocks to buy right now. We’d recommend looking at a safe-and-steady industrials business benefiting from an upgrade cycle.
Stocks We Would Buy Instead of Leggett & Platt
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
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