HNI has been treading water for the past six months, recording a small return of 3.8% while holding steady at $43.72. The stock also fell short of the S&P 500’s 22.9% gain during that period.

Is now the time to buy HNI, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free for active Edge members.

Why Is HNI Not Exciting?

We don't have much confidence in HNI. Here are three reasons we avoid HNI 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 experience short-term success, but top-performing ones enjoy sustained growth for years. Regrettably, HNI’s sales grew at a mediocre 4.9% compounded annual growth rate over the last five years. This fell short of our benchmark for the business services sector.

2. Projected Revenue Growth Is Slim

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 HNI’s revenue to rise by 3.3%, a deceleration versus its 4.9% annualized growth for the past five years. This projection doesn't excite us and implies its products and services will face some demand challenges.

3. Free Cash Flow Margin Dropping

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

As you can see below, HNI’s margin dropped by 2.2 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. HNI’s free cash flow margin for the trailing 12 months was 6.6%.

Final Judgment

HNI isn’t a terrible business, but it doesn’t pass our bar. With its shares lagging the market recently, the stock trades at 12× forward P/E (or $43.72 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are superior stocks to buy right now. Let us point you toward one of our top software and edge computing picks.

Stocks We Would Buy Instead of HNI

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