Over the last six months, UFP Industries’s shares have sunk to $91.71, producing a disappointing 12% loss - a stark contrast to the S&P 500’s 33.2% gain. This was partly due to its softer quarterly results and might have investors contemplating their next move.

Is now the time to buy UFP Industries, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free for active Edge members.

Why Is UFP Industries Not Exciting?

Despite the more favorable entry price, we don't have much confidence in UFP Industries. Here are three reasons there are better opportunities than UFPI and a stock we'd rather own.

1. Demand Slips as Sales Volumes Slide

Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful Building Materials company because there’s a ceiling to what customers will pay.

Over the last two years, UFP Industries’s units sold averaged 5.1% year-on-year declines. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests UFP Industries might have to lower prices or invest in product improvements to grow, factors that can hinder near-term profitability.

2. EPS Took a Dip Over the Last Two Years

Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.

Sadly for UFP Industries, its EPS declined by more than its revenue over the last two years, dropping 20.4%. This tells us the company struggled to adjust to shrinking demand.

3. New Investments Fail to Bear Fruit as ROIC Declines

ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative 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, UFP Industries’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

UFP Industries isn’t a terrible business, but it doesn’t pass our quality test. Following the recent decline, the stock trades at 14.2× forward P/E (or $91.71 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are superior stocks to buy right now. We’d recommend looking at a safe-and-steady industrials business benefiting from an upgrade cycle.

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