SiteOne has been treading water for the past six months, recording a small return of 0.7% while holding steady at $152.92. The stock also fell short of the S&P 500’s 13% gain during that period.

We don't have much confidence in SiteOne. Here are three reasons why SITE doesn't excite us and a stock we'd rather own.

Why Is SiteOne Not Exciting?

Known for distributing John Deere tractors and LESCO turf care products, SiteOne Landscape Supply (NYSE: SITE) provides landscaping products and services to professionals, including irrigation, lighting, and nursery supplies.

1. Core Business Falling Behind as Demand Plateaus

Investors interested in Specialty Equipment Distributors companies should track organic revenue in addition to reported revenue. This metric gives visibility into SiteOne’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.

Over the last two years, SiteOne failed to grow its organic revenue. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests SiteOne might have to lean into acquisitions to accelerate growth, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus).

2. EPS Took a Dip 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.

Sadly for SiteOne, its EPS declined by 24.7% annually over the last two years while its revenue grew by 6.9%. 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 typically prefer to invest in companies with high returns because it means they have viable business models, but the trend in a company’s ROIC is often what surprises the market and moves the stock price. Over the last few years, SiteOne’s ROIC has decreased. We like what management has done in the past but are concerned its ROIC is declining, perhaps a symptom of fewer profitable growth opportunities.

Final Judgment

SiteOne isn’t a terrible business, but it isn’t one of our picks. With its shares underperforming the market lately, the stock trades at 35.6x forward price-to-earnings (or $152.92 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better investment opportunities out there. We’d suggest looking at KLA Corporation, a picks and shovels play for semiconductor manufacturing.

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