Over the past six months, Dole’s stock price fell to $13.19. Shareholders have lost 5.7% of their capital, which is disappointing considering the S&P 500 has climbed by 30.6%. This may have investors wondering how to approach the situation.
Is now the time to buy Dole, 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 Dole Will Underperform?
Even though the stock has become cheaper, we're cautious about Dole. Here are three reasons we avoid DOLE and a stock we'd rather own.
1. Long-Term Revenue Growth Flatter Than a Pancake
Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, Dole struggled to consistently increase demand as its $8.76 billion of sales for the trailing 12 months was close to its revenue three years ago. This was below our standards and is a sign of poor business quality.
2. Low Gross Margin Reveals Weak Structural Profitability
All else equal, we prefer higher gross margins because they make it easier to generate more operating profits and indicate that a company commands pricing power by offering more differentiated products.
Dole has bad unit economics for a consumer staples company, signaling it operates in a competitive market and lacks pricing power because its products can be substituted. As you can see below, it averaged a 8.4% gross margin over the last two years. Said differently, for every $100 in revenue, a chunky $91.61 went towards paying for raw materials, production of goods, transportation, and distribution. 
3. Weak Operating Margin Could Cause Trouble
Operating margin is a key profitability metric because it accounts for all expenses enabling a business to operate smoothly, including marketing and advertising, IT systems, wages, and other administrative costs.
Dole’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging 2.8% over the last two years. This profitability was paltry for a consumer staples business and caused by its suboptimal cost structureand low gross margin.
Final Judgment
We see the value of companies helping consumers, but in the case of Dole, we’re out. After the recent drawdown, the stock trades at 9.6× forward P/E (or $13.19 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere. Let us point you toward our favorite semiconductor picks and shovels play.
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