Over the past six months, UFP Industries’s stock price fell to $106.94. Shareholders have lost 8.9% of their capital, disappointing when considering the S&P 500 was flat. This may have investors wondering how to approach the situation.

Is there a buying opportunity in UFP Industries, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Even with the cheaper entry price, we're sitting this one out for now. Here are three reasons why UFPI doesn't excite us and a stock we'd rather own.

Why Is UFP Industries Not Exciting?

Beginning as a lumber supplier in the 1950s, UFP Industries (NASDAQ: UFPI) is a holding company making building materials for the construction, retail, and industrial sectors.

1. Demand Slipping as Sales Volumes Decline

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 6.3% 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 21.5%. 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. On average, UFP Industries’s ROIC decreased by 4.6 percentage points annually 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 bar. After the recent drawdown, the stock trades at 14.4× forward price-to-earnings (or $106.94 per share). Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're fairly confident there are better investments elsewhere. Let us point you toward the most dominant software business in the world.

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