Matthews trades at $26.25 and has moved in lockstep with the market. Its shares have returned 9.1% over the last six months while the S&P 500 has gained 7.7%.
Is there a buying opportunity in Matthews, 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 Matthews Will Underperform?
We don't have much confidence in Matthews. Here are three reasons we avoid MATW and a stock we'd rather own.
1. Revenue Spiraling Downwards
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Matthews’s demand was weak and its revenue declined by 1.9% per year. This was below our standards and is a sign of poor business quality.
2. Cash Burn Ignites Concerns
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Over the last two years, Matthews’s demanding reinvestments to stay relevant have drained its resources, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 1.3%, meaning it lit $1.32 of cash on fire for every $100 in revenue.
3. New Investments Fail to Bear Fruit as ROIC Declines
We like to invest in businesses with high returns, but the trend in a company’s ROIC can also be an early indicator of future business quality.
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. Over the last few years, Matthews’s ROIC averaged 3.4 percentage point decreases each year. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
Final Judgment
We see the value of companies helping consumers, but in the case of Matthews, we’re out. That said, the stock currently trades at $26.25 per share (or a trailing 12-month price-to-sales ratio of 0.6×). The market typically values companies like Matthews based on their anticipated profits for the next 12 months, but there aren’t enough published estimates to arrive at a reliable number. You should avoid this stock for now - better opportunities lie elsewhere. We’d recommend looking at one of our top digital advertising picks.
Stocks We Would Buy Instead of Matthews
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