3M currently trades at $158.55 per share and has shown little upside over the past six months, posting a middling return of 3.5%. The stock also fell short of the S&P 500’s 16.4% gain during that period.

Is now the time to buy 3M, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Do We Think 3M Will Underperform?

We're cautious about 3M. Here are three reasons there are better opportunities than MMM and a stock we'd rather own.

1. Core Business Falling Behind as Demand Plateaus

In addition to reported revenue, organic revenue is a useful data point for analyzing General Industrial Machinery companies. This metric gives visibility into 3M’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.

Over the last two years, 3M failed to grow its organic revenue. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests 3M might have to lean into acquisitions to accelerate growth, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus).

2. EPS Trending Down

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

Sadly for 3M, its EPS and revenue declined by 2.2% and 4.9% annually over the last five years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, 3M’s low margin of safety could leave its stock price susceptible to large downswings.

3. New Investments Fail to Bear Fruit as ROIC Declines

A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared 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, 3M’s ROIC has decreased 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

3M falls short of our quality standards. With its shares trailing the market in recent months, the stock trades at 19.6× forward P/E (or $158.55 per share). This multiple tells us a lot of good news is priced in - we think there are better stocks to buy right now. Let us point you toward one of Charlie Munger’s all-time favorite businesses.

Stocks We Like More Than 3M

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