Even though Brunswick (currently trading at $63.22 per share) has gained 9.2% over the last six months, it has lagged the S&P 500’s 16.2% return during that period. This might have investors contemplating their next move.

Is there a buying opportunity in Brunswick, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Do We Think Brunswick Will Underperform?

We're cautious about Brunswick. Here are three reasons why BC doesn't excite us and a 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 have short-term success, but a top-tier one grows for years. Unfortunately, Brunswick’s 5.8% annualized revenue growth over the last five years was sluggish. This fell short of our benchmark for the consumer discretionary sector.

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 Brunswick, its EPS declined by 4.2% annually over the last five years while its revenue grew by 5.8%. This tells us the company became less profitable on a per-share basis as it expanded.

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. Unfortunately, Brunswick’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Final Judgment

Brunswick falls short of our quality standards. With its shares underperforming the market lately, the stock trades at 16× forward P/E (or $63.22 per share). This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are better investments elsewhere. We’d suggest looking at a dominant Aerospace business that has perfected its M&A strategy.

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