Over the last six months, 1-800-FLOWERS’s shares have sunk to $4.35, producing a disappointing 16.7% loss - a stark contrast to the S&P 500’s 26.5% gain. 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 1-800-FLOWERS, 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 Do We Think 1-800-FLOWERS Will Underperform?

Despite the more favorable entry price, we're cautious about 1-800-FLOWERS. Here are three reasons we avoid FLWS and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

A company’s long-term sales performance is one signal of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, 1-800-FLOWERS’s 2.5% annualized revenue growth over the last five years was weak. This fell short of our benchmarks.

2. 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, 1-800-FLOWERS’s ROIC has unfortunately decreased significantly. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

3. Short Cash Runway Exposes Shareholders to Potential Dilution

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

1-800-FLOWERS burned through $67.83 million of cash over the last year, and its $271.3 million of debt exceeds the $46.5 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

Unless the 1-800-FLOWERS’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of 1-800-FLOWERS until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

Final Judgment

1-800-FLOWERS doesn’t pass our quality test. After the recent drawdown, the stock trades at 13× forward EV-to-EBITDA (or $4.35 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 stocks to buy right now. Let us point you toward the most entrenched endpoint security platform on the market.

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