Carriage Services’s 9.7% return over the past six months has outpaced the S&P 500 by 8.7%, and its stock price has climbed to $44.42 per share. This performance may have investors wondering how to approach the situation.

Is now the time to buy Carriage Services, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Is Carriage Services Not Exciting?

We’re glad investors have benefited from the price increase, but we're cautious about Carriage Services. Here are three reasons why there are better opportunities than CSV and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, Carriage Services’s 7.6% annualized revenue growth over the last five years was sluggish. This fell short of our benchmark for the consumer discretionary sector.

2. Previous Growth Initiatives Haven’t Impressed

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Carriage Services historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 9.9%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.

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, Carriage Services’s ROIC decreased by 1.9 percentage points annually over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Final Judgment

Carriage Services isn’t a terrible business, but it isn’t one of our picks. With its shares outperforming the market lately, the stock trades at 7× forward EV-to-EBITDA (or $44.42 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment. Let us point you toward a top digital advertising platform riding the creator economy.

Stocks We Would Buy Instead of Carriage Services

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