Over the past six months, Ingredion’s shares (currently trading at $116.63) have posted a disappointing 11.4% loss, well below the S&P 500’s 8.2% gain. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy Ingredion, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Ingredion Not Exciting?
Even with the cheaper entry price, we're swiping left on Ingredion for now. Here are three reasons we avoid INGR and a stock we'd rather own.
1. Revenue Spiraling Downwards
A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years. Over the last three years, Ingredion’s demand was weak and its revenue declined by 2% per year. This was below our standards and is a sign of lacking business quality.
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 Ingredion’s revenue to stall. While this projection implies its newer products will spur better top-line performance, it is still below average for the sector.
3. Free Cash Flow Margin Dropping
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.
As you can see below, Ingredion’s margin dropped by 7.8 percentage points over the last year. If its declines continue, it could signal increasing investment needs and capital intensity. Ingredion’s free cash flow margin for the trailing 12 months was 7.5%.
Final Judgment
Ingredion isn’t a terrible business, but it doesn’t pass our bar. Following the recent decline, the stock trades at 10.4× forward P/E (or $116.63 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are superior stocks to buy right now. Let us point you toward one of our all-time favorite software stocks.
Stocks We Like More Than Ingredion
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