Over the past six months, National Vision’s stock price fell to $10.58. Shareholders have lost 16.6% of their capital, which is disappointing considering the S&P 500 has climbed by 4.2%. This might have investors contemplating their next move.

Is now the time to buy National Vision, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.

Even with the cheaper entry price, we're swiping left on National Vision for now. Here are three reasons why we avoid EYE and a stock we'd rather own.

Why Do We Think National Vision Will Underperform?

Operating under multiple brands, National Vision (NYSE:EYE) sells optical products such as eyeglasses and provides optical services such as eye exams.

1. Same-Store Sales Falling Behind Peers

Same-store sales show the change in sales for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year. This is a key performance indicator because it measures organic growth.

National Vision’s demand within its existing locations has been relatively stable over the last two years but was below most retailers. On average, the company’s same-store sales have grown by 1.9% per year.

2. Breakeven Operating Margin Raises Questions

Operating margin is an important measure of profitability for retailers as it accounts for all expenses keeping the lights on, including wages, rent, advertising, and other administrative costs.

National Vision was roughly breakeven when averaging the last two years of quarterly operating profits, inadequate for a consumer retail business. This result is surprising given its high gross margin as a starting point.

3. Previous Growth Initiatives Haven’t Paid Off Yet

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

National Vision historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 3.3%, lower than the typical cost of capital (how much it costs to raise money) for consumer retail companies.

Final Judgment

National Vision doesn’t pass our quality test. After the recent drawdown, the stock trades at 20.8× forward price-to-earnings (or $10.58 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. There are superior stocks to buy right now. Let us point you toward Wingstop, a fast-growing restaurant franchise with an A+ ranch dressing sauce.

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