Shareholders of Constellation Brands would probably like to forget the past six months even happened. The stock dropped 24.9% and now trades at $140.64. This might have investors contemplating their next move.
Is now the time to buy Constellation Brands, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free for active Edge members.
Why Is Constellation Brands Not Exciting?
Despite the more favorable entry price, we don't have much confidence in Constellation Brands. Here are three reasons why STZ doesn't excite us and a stock we'd rather own.
1. Core Business Falling Behind as Organic Growth Slumps
When analyzing revenue growth, we care most about organic revenue growth. This metric captures a business’s performance excluding one-time events such as mergers, acquisitions, and divestitures as well as foreign currency fluctuations.
The demand for Constellation Brands’s products has barely risen over the last eight quarters. On average, the company’s organic sales have been flat. 
2. Revenue Projections Show Stormy Skies Ahead
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 Constellation Brands’s revenue to drop by 6.1%, a decrease from This projection doesn't excite us and implies its products will see some demand headwinds.
3. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Constellation Brands historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 9%, somewhat low compared to the best consumer staples companies that consistently pump out 20%+.
Final Judgment
Constellation Brands isn’t a terrible business, but it doesn’t pass our quality test. Following the recent decline, the stock trades at 11.8× forward P/E (or $140.64 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at a dominant Aerospace business that has perfected its M&A strategy.
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