Over the past six months, Tyson Foods’s stock price fell to $54.75. Shareholders have lost 7.1% of their capital, which is disappointing considering the S&P 500 has climbed by 1.7%. This might have investors contemplating their next move.
Is there a buying opportunity in Tyson Foods, 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 Tyson Foods Will Underperform?
Even though the stock has become cheaper, we don't have much confidence in Tyson Foods. Here are three reasons why there are better opportunities than TSN and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, Tyson Foods’s 1.5% annualized revenue growth over the last three years was sluggish. This was below our standards. 
2. Low Gross Margin Reveals Weak Structural Profitability
At StockStory, we prefer high gross margin businesses because they indicate pricing power or differentiated products, giving the company a chance to generate higher operating profits.
Tyson Foods has bad unit economics for a consumer staples company, signaling it operates in a competitive market and lacks pricing power because its products can be substituted. As you can see below, it averaged a 7% gross margin over the last two years. That means Tyson Foods paid its suppliers a lot of money ($92.95 for every $100 in revenue) to run its business. 
3. EPS Trending Down
Analyzing the 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.
Sadly for Tyson Foods, its EPS declined by 27.6% annually over the last three years while its revenue grew by 1.5%. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
We cheer for all companies serving everyday consumers, but in the case of Tyson Foods, we’ll be cheering from the sidelines. Following the recent decline, the stock trades at 14.6× forward P/E (or $54.75 per share). This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are more exciting stocks to buy at the moment. Let us point you toward our favorite semiconductor picks and shovels play.
Stocks We Would Buy Instead of Tyson Foods
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