Since April 2020, the S&P 500 has delivered a total return of 92.8%. But one standout stock has nearly doubled the market - over the past five years, Pilgrim's Pride has surged 177% to $55.20 per share. Its momentum hasn’t stopped as it’s also gained 20.4% in the last six months, beating the S&P by 27.3%.

Is now the time to buy Pilgrim's Pride, 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.

Despite the momentum, we don't have much confidence in Pilgrim's Pride. Here are three reasons why you should be careful with PPC and a stock we'd rather own.

Why Is Pilgrim's Pride Not Exciting?

Offering everything from pre-marinated to frozen chicken, Pilgrim’s Pride (NASDAQ: PPC) produces, processes, and distributes chicken products to retailers and food service customers.

1. Long-Term Revenue Growth Disappoints

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last three years, Pilgrim's Pride grew its sales at a mediocre 6.6% compounded annual growth rate. This fell short of our benchmark for the consumer staples sector.

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 Pilgrim's Pride’s revenue to stall, a deceleration versus its 6.6% annualized growth for the past three years. This projection doesn't excite us and implies its products will face some demand challenges.

3. Low Gross Margin Reveals Weak Structural Profitability

At StockStory, we prefer high gross margin businesses because they indicate pricing power or differentiated products, giving the company a chance to generate higher operating profits.

Pilgrim's Pride has bad unit economics for a consumer staples company, signaling it operates in a competitive market and lacks pricing power because its products can be substituted. As you can see below, it averaged a 9.8% gross margin over the last two years. Said differently, for every $100 in revenue, a chunky $90.16 went towards paying for raw materials, production of goods, transportation, and distribution.

Final Judgment

Pilgrim's Pride’s business quality ultimately falls short of our standards. With its shares topping the market in recent months, the stock trades at 11.5× forward price-to-earnings (or $55.20 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better investments elsewhere. Let us point you toward the Amazon and PayPal of Latin America.

Stocks We Like More Than Pilgrim's Pride

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