MasterCraft has followed the market’s trajectory closely. The stock is down 11.4% to $14.88 per share over the past six months while the S&P 500 has lost 13.9%. This may have investors wondering how to approach the situation.

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

Even with the cheaper entry price, we're swiping left on MasterCraft for now. Here are three reasons why you should be careful with MCFT and a stock we'd rather own.

Why Is MasterCraft Not Exciting?

Started by a waterskiing instructor, MasterCraft (NASDAQ: MCFT) specializes in designing, manufacturing, and selling sport boats.

1. Decline in Boats Sold Points to Weak Demand

Revenue growth can be broken down into changes in price and volume (for companies like MasterCraft, our preferred volume metric is boats sold). While both are important, the latter is the most critical to analyze because prices have a ceiling.

MasterCraft’s boats sold came in at 553 in the latest quarter, and over the last two years, averaged 38.8% year-on-year declines. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests MasterCraft might have to lower prices or invest in product improvements to grow, factors that can hinder near-term profitability.

2. Projected Revenue Growth Is Slim

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 MasterCraft’s revenue to rise by 7.2%. Although this projection implies its newer products and services will spur better top-line performance, it is still below average for the sector.

3. EPS Trending Down

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Sadly for MasterCraft, its EPS declined by 26.6% annually over the last five years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.

Final Judgment

MasterCraft isn’t a terrible business, but it isn’t one of our picks. Following the recent decline, the stock trades at 12.7× forward price-to-earnings (or $14.88 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're pretty confident there are superior stocks to buy right now. We’d recommend looking at one of our top digital advertising picks.

Stocks We Like More Than MasterCraft

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