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3 Reasons LW is Risky and 1 Stock to Buy Instead

By: StockStory

April 29, 2025 at 05:05 AM EDT

LW Cover Image

Lamb Weston’s stock price has taken a beating over the past six months, shedding 33.1% of its value and falling to $51.75 per share. This may have investors wondering how to approach the situation.

Is there a buying opportunity in Lamb Weston, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Is Lamb Weston Not Exciting?

Even though the stock has become cheaper, we don't have much confidence in Lamb Weston. Here are three reasons why there are better opportunities than LW and a stock we'd rather own.

1. 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 Lamb Weston’s revenue to stall, a deceleration versus its 17.3% annualized growth for the past three years. This projection doesn't excite us and implies its products will see some demand headwinds.

2. Shrinking Operating Margin

Operating margin is an important measure of profitability accounting for key expenses such as marketing and advertising, IT systems, wages, and other administrative costs.

Looking at the trend in its profitability, Lamb Weston’s operating margin decreased by 5 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its operating margin for the trailing 12 months was 10.8%.

Lamb Weston Trailing 12-Month Operating Margin (GAAP)

3. Breakeven Free Cash Flow Limits Reinvestment Potential

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Lamb Weston broke even from a free cash flow perspective over the last two years, giving the company limited opportunities to return capital to shareholders. The divergence from its good operating margin stems from its capital-intensive business model, which requires Lamb Weston to make large cash investments in working capital and capital expenditures.

Lamb Weston Trailing 12-Month Free Cash Flow Margin

Final Judgment

Lamb Weston’s business quality ultimately falls short of our standards. Following the recent decline, the stock trades at 15.1× forward price-to-earnings (or $51.75 per share). Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere. We’d recommend looking at a safe-and-steady industrials business benefiting from an upgrade cycle.

Stocks We Would Buy Instead of Lamb Weston

Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.

While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.

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