Central Garden & Pet has been treading water for the past six months, recording a small loss of 1.6% while holding steady at $36.22. The stock also fell short of the S&P 500’s 17.4% gain during that period.

Is there a buying opportunity in Central Garden & Pet, 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.

Why Do We Think Central Garden & Pet Will Underperform?

We're swiping left on Central Garden & Pet for now. Here are three reasons we avoid CENT and a stock we'd rather own.

1. Core Business Falling Behind as Organic Sales Decline

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.

Central Garden & Pet’s demand has been falling over the last eight quarters, and on average, its organic sales have declined by 2% year on year.

2. Projected Revenue Growth Shows Limited Upside

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 Central Garden & Pet’s revenue to stall. While this projection suggests its newer products will catalyze better top-line performance, it is still below average for the sector.

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? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Central Garden & Pet historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 9.1%, somewhat low compared to the best consumer staples companies that consistently pump out 20%+.

Final Judgment

We cheer for all companies serving everyday consumers, but in the case of Central Garden & Pet, we’ll be cheering from the sidelines. With its shares lagging the market recently, the stock trades at 13.4× forward P/E (or $36.22 per share). This valuation multiple is fair, but we don’t have much confidence in the company. There are more exciting stocks to buy at the moment. Let us point you toward our favorite semiconductor picks and shovels play.

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